Today, the market exhaled. And belched really loudly to boot.
Today's jobs report gave a lot of people a reason to buy bonds, but after coasting through much of the morning, the bond rally lost its luster heading into the afternoon. Late in the day, the 30-year Treasury bond was up 1 15/32 to trade at 95 1/32, as yields dove 11 basis points to 5.59%. The June bond contract closed up 25/32 to 120 6/32, off the intraday high of 121 17/32.
At one point, the cash bond rose 2 5/32, yielding 5.56%. But volume didn't support the rally, as tracker
reported trading down 6% when compared with the average first quarter Friday last year. Volume was lowest after noon, down 15%.
"We didn't get any reason today to become a long-term bond bull, just a bull for a day," said Kevin Logan, senior market economist at
Dresdner Kleinwort Benson
reported an increase of 275,000 in new
, about what the market had discounted. What got the market happy was the slight upward tick in the household
to 4.4% in February from 4.3% in January, as well as the slim 0.1% increase in
average hourly earnings
. The news indicates that wage pressures still have not materialized in this economy, and the rise in the unemployment rate lifted the psychological burden of looking at a three-decade low for that figure.
Normally, a 275,000 increase in payrolls would be considered healthy by any standard, but in the bond market, which has been plying an "end of the world" trade for the better part of two weeks now, had already discounted that figure. The rest of the report allowed the market to stop sucking in its stomach, loosen its belt buckle and let the fear slowly drain out of the system.
"We had a terrible string of bad news and maybe we've shaken that out," says Gary Goodenough, portfolio manager at
. "Emotion plays a huge role in the markets, and the emotion and fear in the bond market in the past couple weeks has been palpable. Today we eliminated some of that fear, if not most of it."
But economists say the report today only underscored the current strengths in the economy and didn't reveal anything new: Inflation is low, wage pressures have not heated up, but the labor market remains tight. The market, which was apprehensive before this report, isn't likely to force a big rally until economic growth begins to slacken and certainly won't rally ahead of a speech from
Fed Chairman Alan Greenspan
"This is just a trade, not an event," Logan says. "This wasn't a signal that shows the economy turned any corner. We still had 275,000 jobs, above the trend of last year."
The service sector, unsurprisingly, added 263,000 to the payrolls in February, compared with a revised 230,000 gain in January. Average hourly earnings rose by one cent to $13.04 an hour, in comparison with a five-cent gain in January.
However, the manufacturing sector lopped off another 50,000 jobs in February after cutting 17,000 in January. Continued slackening in this sector of the job market indicates that any recovery in manufacturing is confined to overall productivity and isn't carrying over to more job growth.
Already, next week looks mixed. The Fed chairman could always send a signal to the market within his remarks Monday, but he's just as likely to walk a narrow path, since he's speaking to the
Mortgage Bankers Association
. Economists are expecting a 0.8% gain in February
, especially after this week's astounding car sales figures. The
producer price index
, released Friday, is expected to come in down 0.1%.
Greenspan is "probably content with the market's performance after his
testimony," says David Greenlaw, money market economist at
Morgan Stanley Dean Witter
. "Retail sales and PPI should reinforce the tide of strong growth and no inflation ... that kind of news should be enough to keep the bond range bound."
The wild card that could pressure the market is corporate supply. Both
are prepping billion-dollar bond offerings -- AT&T's may swell to more than $10 billion -- and the supply may pressure Treasury bonds. It certainly factored into the futures selling today. Underwriters preparing a corporate offering sell futures contracts as a hedge, in anticipation of owning a large volume of corporate paper just after they sell the deal.