The Treasury market expected an excuse to rally this morning, and got it. The
Employment Cost Index
rose just 0.4%, the smallest percentage gain since the
started tracking the data, and that spurred a one-point rally.
After the ECI's release, selling ensued. Some of the activity was a typical "buy the rumor, sell the news" response that often happens when traders have the opportunity to prepare for a specific economic release, said one analyst. Traders buy bonds, expecting a bond-friendly figure, and then sell when the market rallies on the news. This type of trading sometimes mutes the response to economic data, but today's number was such a tremendous surprise that a rally was inevitable.
Lately the 30-year Treasury was up 26/32 to trade at 95 31/32. The yield, which closed yesterday at 5.59%, is down 6 basis points to 5.53.
The ECI, which measures the quarterly rate of growth in wages, salaries and benefit costs, rose only 0.4% during the first quarter, much lower than the 0.8% forecast. This is the smallest increase since Labor began tracking the data in March 1982, according to a spokesperson. The bond market is intensely focused on inflationary indicators, especially with the recent rise in oil prices, and so this report was a friendly surprise.
What held down the ECI gain this quarter were white-collar workers. Total compensation in that sector did not rise in the first quarter. Wages and salaries for the finance, insurance and real estate industries fell 1.9%, reflecting lower bonuses on Wall Street and a drop in commission income that resulted from last year's Asian crisis.
"Without that, we don't see much moderation in wage and salary data," said Mark Vitner, capital markets economist at
. The ECI for blue-collar workers rose 0.7%, same as the fourth quarter.
More supply is invading the market today, including a $3.5 billion offering for
, a unit of
. This issue, which includes five-, 10- and 20-year securities, was increased in size from an original $3 billion yesterday evening.
Sales of new homes
rose 2.1% on a seasonally adjusted annual basis to 909,000 in March, up from a revised 890,000 rate in February.
Another group of economists is conceding that the economy is not going to slow in 1999 as much as originally feared. The
National Association of Business Economists
revised its thinking today, stating growth should fall between 2% and 3% in 1999.