Updated from 11:49 a.m. EST
Treasuries ended Thursday's session essentially flat as the market consolidated ahead of the much-anticipated December payrolls report Friday morning.
The long end of the market was caught between a mixed batch of data: another sign that the housing market is slowing and a slew of well-received corporate bond issues helped Treasuries overcome early weakness brought on by signs of economic strength in reports on employment, service sector growth and crude inventories.
After falling by as much as 9/32 in early morning trading, the benchmark 10-year note fought back to end the day little changed, yielding 4.35%. The 30-year bond edged lower one tick to yield 4.54%.
In shorter-dated debt, the two-year and five-year were both unchanged from the previous session to yield 4.31% and 4.28%, respectively. Bond prices and yields move in opposite directions.
While the weekly jobless claims report was upbeat, it was overshadowed by anticipation of the December payroll report, which muted market activity late in the day. The monthly report due out Friday morning is expected to show that payroll numbers dropped by 15,000 to 200,000 and that the unemployment rate remained steady at 5%, according to analysts surveyed by Briefing.com.
Traders will scour the unemployment rate, hourly earnings & average workweek numbers for as an indicator of forward consumer spending, which accounts for about two-thirds of economic activity.
An unexpected drop in unemployment could ramp up concerns that the economy is too hot for the
to stop raising rates anytime soon.
Bonds fell sharply early Thursday after weekly jobless claims were at the lowest level in more than five years. Claims for the week ending Dec. 31 fell by 35,000 to 291,000, the Department of Labor said, vs. expectations for a smaller drop to 320,000.
Placement firm Challenger, Gray & Christmas also said that corporate layoff announcements in December were up 9% from November, but were still down 1% from the previous year.
And the Monster.com online recruiting index is up 28% from a year ago, tracking a steady upward trend.
In another sign of economic strength, the December ISM nonmanufacturing index rose to 59.8 vs. expectations for a slight rise to 59, with new orders fighting back above 60 for the first time since it hit a record at 65.8 in August.
But it is the real estate market that most economists believe will steer the course of the U.S. economy in 2006, so Thursday's disappointing pending home-sales report kept a Treasury selloff at bay.
Pending home sales fell in November to the lowest level in 10 months, according to the National Association of Realtors; the group's chief economist, David Lareah, told
that this shows a slowdown has begun in the housing market after a five-year rally.
The Pending Home Sales Index stood at 120.6 in November, down 2.5% from both October and a year ago, marking the lowest level for the index since January 2005.
"This limited any further selling of bonds in the here and now," said Steve Rodosky, senior vice president with Pacific Investment Management Co. (PIMCO).
"There's also a lot of interest in the new corporate bonds issued yesterday ... there's a full calendar and there will be more coming today," he said.
When a company announces it will issue bonds, it will often hedge its bets by selling off assets, including Treasuries. When the day of issuance comes, the company will then buy back the Treasuries sold as a hedge, particularly if demand for its corporate issue looks strong, Rodosky explained.
"There's a lot of money to be put to work today ... and that should keep Treasuries stable," he said.
The Federal Home Loan Bank sold $3 billion in 5-year global notes yielding 4.669%, and 58% of the issue went to international bidders.
Companies announcing new issues Thursday included
( FO) and
New York Life Insurance
TIAA Global Markets
the Royal Bank of Canada
and Greece also said they would sell notes.
In other reports, crude oil inventories fell by 1.01 million barrels for the week ended Dec. 30, vs. the 1.25 million-barrel drop forecast by analysts polled by Briefing.com. The Energy Information Agency also said that at 321.6 million barrels, crude inventories remain well above the upper end of the average range for this time of year.
Oil prices fell on the news, and the move relieved some bond traders, who've worried that 2005's high oil prices could eventually work their way into tame core inflation figures.