Bonds Ignore Historic Drop in Weekly Jobless Claims

Bond prices were little changed on extremely light volume this morning, despite a drop in the weekly tally of initial jobless claims to its lowest level in 25 years and the latest rise in oil to near $25 a barrel.

The markets' single-minded focus on the value of the dollar against the yen, only slightly lower this morning as traders await the outcome of this weekend's G7 meeting in Washington, isn't hurting much today. The meeting may produce an accord to weaken the yen, whose rise is detrimental to Japanese exporters, through joint intervention in the currency markets.

The bond market "is focused on the dollar and equities, but more on the dollar," said David Ging, Treasury market strategist at Donaldson Lufkin & Jenrette. "So we're not likely to see much before G7, to see if anything comes out of the meeting to support the dollar."

The benchmark 30-year Treasury bond was lately up 2/32 at 100 18/32, trimming its yield a basis point to 6.08%. Shorter-maturity note yields were unchanged to a basis point lower.

Initial jobless claims, the only economic indicator out today, fell 17,000 to 272,000 from 289,000 the previous week.

Bond traders were discounting the number, which indicates a super-tight labor market, on the assumption that claims were depressed by wet weather in the Southeast. Never assume: The Labor Department reports the single largest increase in first-time claims for unemployment insurance was in North Carolina, while the biggest decreases were in California, Missouri, Kentucky, Illinois and Pennsylvania.

"In light of the fact that recent economic data have been better than expected the bond market has held its own quite well," said Dennis Gartman, publisher of The Gartman Letter.

And while he expects nothing to come of the G7 meeting and an even weaker dollar as a result, Gartman thinks interest rates will move lower as the year draws to a close as new issuance of corporate bonds dries up ahead of Y2K and Treasury issuance is limited by the federal budget surplus.

"The market is coming to grips with the fact that a very limited amount of supply is coming at it, and limited supply means I'm more likely to be a buyer than a seller," he said. "They haven't rescinded that rule yet."

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