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All in all, the bond market held together pretty well today, despite having to cope with an employment report that was stronger than expected.

As it turned out, the December jobs report wasn't strong enough to scare the market into rethinking current sentiment, and bonds ended the day not far from unchanged, after selling off almost a point in the early going.

Nonfarm payrolls

increased by 315,000 in December, much more than the expected 224,000, according to


, and average hourly earnings rose 0.4%; the market was looking for 0.3%. The market still believes the Fed will ultimately raise interest rates by 25 basis points on Feb. 2, but the notion that the Fed will bump the rate up by 50 basis points at once is a decidedly minority viewpoint.

"We had been following the stock market," said Mike Franzese, intermediate government trader at

Zions First National Bank

in Jersey City, N.J. "But this was a pretty good unemployment report, there was no wage inflation, which everybody was looking for, so maybe 50 is not in the cards."

Lately the benchmark 30-year Treasury bond was up 1/32 to 94 14/32, regaining most of its morning losses. At one point the long bond yielded 6.61%, but was lately unchanged at 6.55%.

The prevailing viewpoint among strategists was that this report doesn't provide the Fed with enough ammunition to raise the funds target by 50 basis points. Hiking by one-half a percentage point would also seem to go against



Alan Greenspan's

gradualist nature -- the Fed hasn't raised the funds rate by more than 25 basis points since Feb. 1, 1995.

"If you told me that today's payroll figure was accompanied by 4% unemployment or 3.9%, then sure, it's fair game for a 50-point move," said Anthony Karydakis, senior financial economist at

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. "But right now, there isn't the material to make the move that aggressive."


unemployment rate

remained steady at 4.1%, despite the increase in payrolls, which was the largest since July's 373,000 jump. Retail trade, which gained 65,000 in new jobs, and the government, which added 64,000, accounted for a good portion of the increase.


average hourly earnings

outpaced expectations for a 0.3% increase, but economists weren't too concerned, because earnings rose just 0.1% in November. On a year-over-year basis, average hourly earnings are rising at a 3.7% rate, which in terms of wage inflation compares favorably with December 1998's 3.8% rate.

Jack Malvey, chief global fixed-income strategist at

Lehman Brothers

, said today's buying demonstrates a "collision" between long-term investors who haven't seen yields this attractive since September 1997, and short-term players scared by the forceful selling the market's done most of the week.

"On a 12-month horizon it's not that bad," he said. "But on a short-term horizon the market is looking at least two, maybe three rate hikes, with the

Bank of England

meeting next week, and saying, 'let's be cautious.'"

The most-watched events of next week will be the twin inflation reports, the

Producer Price Index


Consumer Price Index

. These two reports are probably the only ones that could convince the Fed to break from its gradualist pattern and raise the 5.5% funds rate by more than 25 basis points, should they display a significant rise in inflation.

The core PPI, currently rising at a 1.8% year-over-year rate, is projected to rise 0.1% for the month of December. The core PPI was flat in November.

This report, the market's best indicator of wholesale inflation, is expected to show a 0.3% increase in the overall PPI (which includes food and energy prices) due to steady increases in oil prices during December. It's released on Thursday.

The CPI, a measure of consumer inflation, is expected to rise 0.2% in December, according to


, which would be the same as November's increase. The report, due Friday, is expected to show a 0.3% increase in the overall CPI -- once again, rising fuel costs are to blame.

On a year-over-year basis the core CPI is rising at a 2.1% rate, which compares favorably to Dec. 1998's 2.4% rate. Many economists believe inflation will tick up this year and end the year somewhere around 2.5% or 2.6%.

Sandwiched in between those reports is Greenspan's speech to the

New York Economic Club

, scheduled for 8 p.m. EST Thursday. Economists believe that if the chairman is going to warn of a potential 50-basis-point hike, this speech will be it.

He's slated to discuss technology and its role in the economy, which still affords him a clear opportunity to give the markets a Friday morning headache.


More or less, I doubt

the numbers can provide a whole lot of a new direction. But Greenspan's speech is a clue as to what the Fed has in mind beyond February," said Karydakis. "It's hard to believe he can be overly reassuring in this environment."

Freddie Mac to Auction Bills on the Net

On Monday and Tuesday,

Freddie Mac


will auction $11.5 billion in bills over the Internet. This will mark Freddie's first auction of its "Reference Bills" on the Net, following this week's sale of $6 billion in bonds that included online execution.



will facilitate the sale. Freddie Mac will accept both competitive and non-competitive orders through its 25-member group of dealers, which includes many primary dealers. Freddie will sell $5 billion of one-month bills, $3.5 billion of two-month bills on Monday and $3 billion of three-month bills on Tuesday.