Bond Brief: Jobless Selloff

The run-up to the March employment numbers has seen a mixed bag of data. Weekly jobless claims through most of March edged higher, the employment portion of the ISM index has fallen, there have been fewer recorded layoff announcements, and an uptick in Internet-based recruiting and hiring.

Most recently, the Labor Department said Thursday that initial claims for unemployment benefits for the week ended April 1 fell by 5,000 to 299,000, vs. expectations for the number to edge higher to 305,000 from 302,000.

This is the first time in six weeks that the number has come in below 300,000, and the four-week average of claims fell to a five-year low.

The upbeat reading had market watchers worried that a robust labor picture could force the Fed to keep raising rates.

"The improvement in the claims numbers is what's really driving our market today," says Steve Ricchiuto, chief U.S. economist with ABN Amro. "People are afraid that the [payrolls] number could be in the 250,000 range."

Shin says that the whisper number for Friday's payroll number is higher than estimates, particularly in light of Wednesday's comments from Treasury Secretary John Snow that the report would be strong.

"I don't think the number would have to come in drastically low for yields to reverse," says Shin. "I think expectations for the payroll number have been increased, and if the reading is not in the 200,000 range, people will be disappointed."

Adding to the bearish sentiment for bonds, the Monster Employment Index rose by 4.5% in March. This index measures online advertising and recruitment.

Whether or not the payroll number surprises to the upside, Ricchiuto believes that the average over the next few months will be a healthy 175,000 to 180,000. He adds that the payroll and employment numbers are not the only things weighing on the long end.