Bonds Plateau Quickly After Jobs Data

The data were seen mainly as a wash, not giving any indication to the Fed's intentions for the FOMC's August meeting.
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The day of the

employment report

is normally one of high volatility, but it didn't take long for bonds to quiet down this morning. The

Labor Department

reported a 268,000 increase in nonfarm payrolls in June, surpassing expectations, and a rise in the unemployment rate to 4.3%. Bonds (like

Star Trek

cast members acting out turbulence) were thrown this way and that way at the 8:30 a.m. EDT release, but quickly settled down.

Lately the 30-year Treasury was up 6/32 to trade at 89 23/32, moving a bit higher in the last hour. The yield was down 1 basis point to 6.00%.

Analysts said the reaction to today's report was contained more because of what it doesn't say. It doesn't tell the market that wage pressures are rising at an alarming rate, and it doesn't feed into the

Fed's

worry that the labor market is continuing to tighten. On the other hand, it doesn't give anybody the idea that the economy is slowing either. It's really a wash.

"To me, when you look at the labor market data, it really doesn't settle the debate or create a presumption of what the Fed will or won't do" in August, said Dana Johnson, head of capital markets research at

Banc One Capital Markets

. Wednesday the Fed hiked the fed funds target rate to 5% from 4.75%, but dropped its bias in favor of raising the rate again at its next meeting Aug. 24.

The benchmark 30-year's first reaction to the report, which showed the household unemployment rate rose to 4.3% in June from 4.2% in May, was to jump by 14/32. That was at 8:30 a.m EDT. A minute later the bond was down 11/32, as traders swallowed the 0.4% rise in average hourly earnings and the increase in the average workweek to 34.5 hours from 34.4 hours in May. (Even though the May stats on earnings and the workweek were revised lower).

Economists were looking for a gain of 220,000 in nonfarm payrolls, according to

Reuters

, but the bond market's used to the Labor Department blowing those estimates out of the water. Despite June's impressive growth, May payrolls were revised to a 5,000 decline, compared with the original 11,000 increase. The 12-month moving average for payroll growth stands at 243,000, up from 242,000 in May. "But the uptick in the unemployment rate neutralized the sense that job growth was a little stronger than expected," Johnson said.

The market's worried about wage pressures, because the Fed believes the economy's recent 4% rate of growth is not sustainable without a rise in inflation because of the drum-tight labor market. Today's wage figures don't really tip the scales in favor of more rate hikes -- the 0.4% rise in average hourly earnings in June are countered by the downward revision to May's figure to 0.3% from 0.4%. The forecast was for a 0.3% increase. On a year-over-year basis, average hourly wages are rising on a 3.7% rate, compared to 4.2% last June.

The balance of today's session is expected to be quiet -- a 0.4% increase in average hourly earnings is one thing; a three-day weekend, that's something else.