Jobs Data Send Bonds Hurtling

The decline is being led by the short end.
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Jobs data have sent the bond market sprawling. Non-farm payrolls increased by 378,000 in the month of December, almost double the forecast, and the bond market is selling off.

The short end of the curve is leading the market down today. It was thought a few weeks ago that the

Federal Reserve

would cut rates at least one more time early this year. That sentiment had been eroding as the stock market broke the sound barrier, and was quashed further by today's data.

The shorter-dated securities trade on the prospects of Fed activity, and so the two-year is down 6/32 to yield 4.75%, with the five-year note down 12/32, yielding 4.71%. The two-year note matched its highest level since the Dec. 29 auction, when the note widened to 4.75% before the new notes sold at 4.69%.

"Since the stock market looks so strong again, and now with this supporting information, it allows

the Fed to sound hawkish," said Tony Crescenzi, chief bond market strategist at

Miller Tabak Hirsch

. "It's not good for the market. Bonds should remain under pressure for the rest of January because there's nothing good to look forward to."

Reports of a large buyer purchasing a giant block of bonds propped up the long bond this morning. The benchmark 30-year bond was down lately 16/32 to trade at 99 28/32, and the yield rose to 5.26%. The 10-year is down 15/32 to yield 4.83%.

The futures market has broken through key support levels. The bond contract's previous closing low was 125 8/32, which it hit on Nov. 6. Currently the bond contract is trading at 125 20/32.

The

household unemployment

rate fell to 4.3% in December from 4.4% in November. Economists had forecast an increase to 4.5%. The manufacturing sector continues to trim payrolls, but only lost 13,000 in December, compared to a 63,000 decline in November. The service-producing sector added 290,000 to the payrolls this month. Construction jobs rose 104,000, compared to a 42,000 increase in November.

Even though the rise in

initial jobless claims

would seem to indicate that January's payroll figures will not be as rosy as December's, claims were actually declining in late summer when the household employment rate rose to 4.6%. At the end of September, the four-week jobless claims average was 299,500, while the household employment rate was 4.6%.

"That's the way it's going to be for the rest of the month," Crescenzi said. "They'll move further away from the ease bias than before. They were already in neutral, but now more firmly in neutral than before."

Expectations as reported by

Reuters