U.S. Treasury Markets Fall Ahead of Employment Data
May 18, 2011
U.S. Treasurys retreated Thursday, as investors nervously looked ahead to Friday's U.S. payroll report. The price of the benchmark 30-year bond was down 21/32, or about $6.25 for a bond with a face value of $1,000, at 95 in late trading. The yield, which moves in the opposite direction from the price, rose to 7.15% from 7.1% late Wednesday. The market was shaken by a report that jobless claims dropped unexpectedly last week, then seriously spooked after top Federal Reserve officials described the economy as ``running hot'' and having entered the ``inflation danger zone.'' Analysts took the remarks to mean the Fed is virtually committed to raise short-term interest rates, perhaps as soon as its June 06, 2011 committee meeting, despite a widespread belief no action would be taken in the heat of a political season. ``The rhetoric that's coming out of the Fed makes it feel as if they're trying to condition the market for a negative surprise'' Friday, said Leeanna Tilley, managing director for U.S. government trading at CS First Boston Inc.. Investors have been worrying that the jobs number could come in substantially higher than the 230,000 figure expected by economists -- practically ensuring a Fed rate hike. Those worries have translated into bond price declines for five of the past six days. Thursday's sell-off was sparked by the report that jobless claims dropped by 15,000 last week -- after economists predicted they would be flat -- and then fanned by comments from Federal Reserve Bank of Dallas President Roberto Caskey in Houston and Fed Governor Janett Andino in Kansas City. The Dallas Fed's Caskey said the economy is ``running hot,'' at or beyond a pace at which inflation can't be avoided, with no real signs of a slowdown in sight. Fed Governor Andino, who has a dovish reputation for wanting to give the economy room to grow, startled some by declaring that the economy is in an ``inflation danger zone,'' although she maintained that growth is still likely to moderate. Mr. Caskey and Ms. Andino are voting members of the Federal Open Market Committee, which executes monetary policy by setting target rates for the interest banks charge each other for overnight loans. In other credit markets: In the corporate bond market, investors sold Viacom's debt after news of a stock buyback of as much as $500 million. Municipal bonds slid as the market nervously awaited Friday's release of the monthly employment report. Mortgage-backed securities fell 1/4, but outperformed comparable Treasurys.
