The weaker-than-expected February employment report triggered a rally in Treasuries that benefited the shortest-maturity issues most.
The action reflected the view that if future employment reports look anything like
last month's, the
won't have to hike the
fed funds rate
, a short-term rate, as much or as quickly as previously believed.
The report initially sent all Treasury prices higher, but the gains moderated over the course of the day as stock proxies moved inexorably higher.
The exuberance in stocks "makes it tough to get any sizable reaction in Treasuries,"
Credit Suisse First Boston
senior market economist Mike Cloherty said. "It really is amazing how bond trading is sort of a second derivative of equity trading lately."
Rising stock prices have dogged the bond market because of the connection between the stock market and the rapid pace of consumer spending, which is fueling economic growth at what the Fed has called an unsustainable pace.
The benchmark 10-year Treasury note, which rose as much as 10/32 in the 40 minutes after the 8:30 a.m. EST release of the jobs report, ended up just 1/32 at 100 27/32, trimming its yield a fraction of a basis point to 6.383%. The two-year note, which spiked 6/32 at 8:30 a.m., ended up 2/32 at 100, cutting its yield 3.5 basis points to 6.499%.
The 30-year bond, the erstwhile benchmark whose price has been driven up by government plans to reduce the supply of long-maturity debt, finished up 3/32 at 101 22/32, trimming its yield a fraction of a basis point to 6.126%.
Chicago Board of Trade
, the June
Treasury futures contract closed up 13/32 at 95 15/32.
The February jobs report was positive for the bond market in all major respects. The economy's weaker-than-expected performance was seen as taking pressure off the Fed to hike the fed funds rate aggressively in the months ahead.
, the report's most closely watched component, expanded by just 43,000 in February. Economists polled by
had forecast a gain of 206,000.
At the same time, the
edged up from January's 30-year low of 4.0% to 4.1%. A slackening of the labor market is positive because it reduces the threat of wage inflation.
Speaking of which,
average hourly earnings
rose 0.3%, in line with expectations. At 3.6%, the year-on-year pace of wage growth remains lower than it's been for most of the last three years.
But while the results were unambiguously positive for the markets, they don't change the likely outcome of the
Federal Open Market Committee's
March 21 meeting, which is a hike in the fed funds rate from 5.75% to 6%, market analysts said. At the CBOT, the
fed funds futures
continue to fully discount the move.
Rather, the report raises the hope that over the course of the next several months, the Fed won't hike rates as many times or as quickly as some fear it might.
"This far from puts an end to the tightening, but if we get more data like this is could alter the pace," Cloherty said. The February data "clearly tell you the extraordinary numbers of the previous two months were overstating matters." The economy added 384,000 jobs in January and 309,000 in December.
were reported to have dropped 1.1% in January, dropping the year-on-year growth rate to 7.1% from 10.6%. The factory orders report revised the January drop in
durable goods orders
to 1.9% from 1.3%. The ex-transportation drop was revised from 0.5% to 1.2%.
Consumer Sentiment Index
for February was revised to 111.3, down from a record high of 112 in January.
Purchasing Managers' Non-Manufacturing Index
rose to 58 in February from 52.5 in January.
Currency and Commodities
The dollar fell against the yen and rose against the euro. It was worth 107.67 yen, down from 107.78 yesterday. The euro was worth $0.9610, down from $0.9642 yesterday. For more on currencies, please take a look at
Currency Watch column.
Crude oil for April delivery at the
New York Mercantile Exchange
fell to $31.45 a barrel from $31.69 yesterday.
Bridge Commodity Research Bureau Index
rose to 213.51 from 212.12 yesterday.
Gold for April delivery at the
rose to $290.30 an ounce from $289.70 yesterday.