Short Treasury Yields Scaling New Heights

The long bond is also down on higher commodity prices and general concern about rising inflation.
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On second thought...

The Treasury market is in the dumps this morning after investors came back from the bond market's three-day weekend and took another look at the September

employment report

, released Friday.

Also, commodity prices are higher on the day so far, while the dollar is weaker, both factors that can weigh on bond prices. There are no major economic indicators today.

The latest collapse in prices lifts the benchmark 30-year Treasury bond's yield to within 2 basis points of its high for the year, 6.26%. The long bond was lately off 19/32 at 98 14/32, lifting its yield 4 basis points to 6.24%. The 10-year Treasury note yield was 7 basis points away from its high for the year at 6.09%, while the two- and five-year notes are already trading at yields higher than they've seen since late 1997.

The underperformance of the shorter-maturity instruments reflects concern that the

Fed

will hike the fed funds rate at its next meeting on Nov. 16. As a short-term interest rate, the fed funds rate influences shorter-maturity Treasuries more directly than longer-term ones. "November hasn't been ruled out for a tightening," said Joe LaVorgna, senior economist at

Deutsche Bank Securities

.

The second look at the September employment report -- which saw

nonfarm payrolls

shrink by 8,000 (a much weaker-than-expected performance) while

average hourly earnings

advanced 0.5% (a whopping two-tenths more than expected) -- is focusing on the wage component. "People kind of reassessed the inflation numbers over the weekend," said John Burgess, global head of structured fixed-income at

Deutsche Bank Investment Management

in London. "There's more realization that the economy doesn't seem to be slowing much, and we have global growth and tightening cycles, which doesn't seem to be done yet."

At the same time, LaVorgna says the ultra-weird payrolls number "made people discount the release and focus on the next set of data," which are expected to be strong. The

Producer

and

Consumer Prices Indices

for September are forecast to receive a substantial boost from a tobacco price hike, while the October employment report can be expected to revise September's results upward.