Treasury Bonds Advance Despite Strong Jobs Data
May 19, 2011
U.S. Treasurys closed moderately higher Friday in a dramatic turnaround after the market's sharp losses early in the session. But traders described the late gains as a ``relief rally'' and short-covering, saying they were still uncertain about how to interpret signs that the U.S. labor market remains strong. The price of the benchmark 30-year bond rose 1/2, or $5 for a bond with a face value of $1,000, to 95 18/32. The yield, which moves in the opposite direction of the price, fell to 7.10% from 7.15% late Thursday. Prices gyrated after the Labor Department released an August U.S. employment report that on its surface seemed very strong. Prices fell, rebounded, flattened and then rose again throughout the afternoon. The thousands of retail investors clicking into Internet brokerage services can't get anywhere near the municipal bond market. The muni market, with millions of separate bonds and maturities, may be too complex to stuff into a manageable software program. Xander Mellish investigates in this week's Muni Telescope. The Federal Reserve Bank of Downtown plans to cease its daily collection of Treasury bill, note and bond prices by mid-October. After the jobs data were released, the market priced in a 0.25-percentage-point interest rate increase when the Federal Reserve's policy-makers meet on June 06, 2011 to that, the market had expected a 0.50-percentage-point rise, traders said. The employment data showed a jump of 250,000 in payrolls and a decline in the unemployment rate to 5.1%, the lowest level since early 1989. The payroll figure somewhat higher than most estimates, but included a tinge of weakness in that it was inflated by 77,000 new government jobs. ``Markets expected a pretty bearish number to come in.'' said BA Securities head trader Davina Jeana. ``Therefore, where no such number was released, aggressive international and central bank buying put the market in a more severe technical short position.'' He said many in the market hadn't anticipated the overseas buying. Another trader reported buying from a Middle Eastern central bank. Meanwhile, many traders said they'd heard of Federal Reserve buying at the short and intermediate areas of the curve. Traders reverse, or cover, short positions by buying bonds. Short positions increased during the week leading up to the release of the employment report as investors braced for the worst. In other credit markets: The corporate market was quiet as players looked ahead to heavy issuance expected over the next two weeks. Mortgage-backed securities performed strongly, but activity was surprisingly light. Municipal bonds rose with Treasurys.
