Traders Use Jobs Report to Run Bonds Higher

On a thin, illiquid day, traders took the bond market's early gains -- founded on the weak employment report -- and ran the market higher in the latter hours of trading. The initially reluctant market managed to push the 30-year bond up 1 3/32 to close at 94 31/32, yielding 5.60%.

If anything, today's data allowed the long bond to bounce off its near-term low of around 5.70%, now reached twice in the last 30 days. Impending Treasury paydowns resulting from tax receipts, plus the anticipation of renewed foreign interest, might provide a bottom for the market in the coming weeks.

June bond futures closed up 1 2/32 to 121, helped along by technical buying. Short covering ensued after this morning's data defined the high yield of the range, just as it did with the release of the February jobs report. GovPX volume was predictably light, with only 28% of the usual Friday first-quarter activity.

"With low volume, it's not really hard to push the market up a point," said Walter Burke, senior technical analyst at MCM Moneywatch. "We're working toward the top of the range again. We were oversold, and primed for a turn here."

The long bond gained only about 1/2 a point in the first hour after the 8:30 a.m. EST release, simply because the major components were warped with seasonal adjustments and weather-related factors.

"I think the reaction sort of shows you the market understands there's all distortions affecting the March numbers, and it isn't making too much of it as a result," said Henry Willmore, senior economist at Barclays Capital.

Nonfarm payrolls grew only 46,000 in March, but seasonal adjustment factors that improved the past three reports affected this release. February's gain, exaggerated to the upside, was revised to 297,000 from 275,000.

Conversely, the household unemployment rate fell to 4.2% from 4.4% in February. This is the lowest unemployment rate since February 1970, but the size of the civilian labor force fell 455,000, while employment only fell by 111,000. According to Kevin Flanagan, money market economist at Morgan Stanley Dean Witter, this occurrence is likely to be reversed in April and May's reports, "so we'll probably see unemployment go back to 4.3% to 4.4%," he said.

Forget about a grain or two -- that's a whole shaker of salt to digest. So the market is holding out for more economic data, especially weekly jobless claims figures, consistently clocking in at less than 300,000. The Producer Price Index is released next Friday; a core increase of 0.1% is expected, while the overall PPI, which includes food and energy prices, is forecast to rise 0.3%, mainly due to rising oil prices.

"We're still looking at developments with the glass half-empty," Flanagan said. "We're reacting more adversely to news suggesting a stronger economy than vice versa. The burden of proof is on those who feel we're going to moderate."

That's a good explanation for why the market lost about a point on both Wednesday and Thursday, the days when the Chicago Purchasing Managers Index and the national version of the same name were released, respectively. Both indices were higher, and as forward-looking figures, they're highly regarded. Detractors say they overstate sentiment and are representative of only a small portion of the economy.

In Other Markets

Most major stock markets were closed overnight. The Nikkei 225 lost 37.37, or 0.23%, ending the week at 16,290.19. Dollar/yen was lately down 0.5 to 120.6. Nissan (NSANY), which just signed a deal with France's Renault, is going to kill a truck-making project with DaimlerChrysler (DCX), the Sankei newspaper reported earlier today.

The Wall Street Journal reported this morning that Liberty Media (LMGA) will sell its 50% stake in Fox/Liberty Sports to News Corp. (NWS) in exchange for a stake in Murdoch's vast holdings.

France said it was looking for bids for up to 10% of Credit Lyonnais, that country's fourth largest bank. Bids on the first block of 33% of the bank need to be filed with the French government by April 28. The European Commission demanded that 90% of the bank be sold by the end of the year in exchange for the approval of a $25 billion taxpayer bailout. Another 50% will be sold in July.

Finally, David L. Smith will no longer run back home to sweet Melissa. Smith, 30, of Aberdeen, N.J., was arrested Thursday night at his brother's house for originating the computer virus that infected computers through email.

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