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04-02-2004, 05:20 PM
Treasury yields close at two-month highs
Friday, April 2, 2004 3:56 PM
- CBS MarketWatch.com
By Gregory Robb, CBS Marketwatch.com
Last Update: 3:56 PM ET Apr 2, 2004
WASHINGTON (CBS.MW) -- Treasury prices closed at two-month highs after the U.S. March unemployment data was much stronger than anticipated, raising the likelihood that the Federal Reserve will raise interest rates sooner rather than later.
Kevin Giddis, managing director of fixed income at Morgan Keegan & Company, said the strong employment report "is making the bond market sick to its stomach."
U.S. nonfarm payroll employment grew by its fastest rate in four years in March, rising by 308,000. See full story.
The increase was more than double expectations. The consensus forecast of Wall Street economists was for payroll growth of 122,000 in March.
"The report is pretty overwhelming. The clear reading here is things were better than we thought and are better than we expected," said Russ Sheldon, economist at BMO Nesbitt Burns in Toronto.
The benchmark 10-year Treasury note ($TNX) fell 2 1/16 points at 98 27/32. Its yield jumped to 4.14 percent vs. 3.89 percent at the previous U.S. close. This is the biggest rise in yields since last July.
This would be the highest close since Feb. 5, the day before the weak January jobs report cast doubt on the strength of the recovery.
"The bond market is clearly beating a hasty retreat as it ought to," said Robert Brusca, chief economist at Fact and Opinion Economics.
"We have enough economic growth and now we have job growth and we have flaring commodity prices. We are in a land where if job growth persists the Fed will have no mileage out of keeping rates steady. That is what the bond market can see," Brusca said.
"The markets view this as an all-clear signal that the economy is firing on all cylinders," Sheldon said.
Bill Tedford, fixed income strategist with Stephens Capital Management in Little Rock, Ark., said the bull market is over for bonds.
"It has been a long time coming, but I suspect this is the beginning of a march upward in interest rates that is going to go on for a good while," Tedford said.
Other analysts said it was still too early to buy the bull market.
"U.S. 10-yr note yields...have yet to confirm significantly higher yields ahead," said David Solin, partner at Foreign Exchange Analystics.
"I would keep a strong watch on the 4.20 to 4.25 area on the 10-year. If we move above there it is going to be a very bearish technical signal," said Josh Stiles, bond analyst at IDEAGlobal.
Stiles said he expected yields to get there eventually, though it might take another strong job report or a hawkish Fed speech to push the market to that level.
The 30-year bond ($TYX) plunged 2 3/4 to 105 26/32, yielding 4.98 percent vs. 4.80 percent.
The 2-year note slipped 7/16 at 99 10/32 to yield 1.86 percent vs. 1.62 percent. This is a rise of 24 basis points, the largest increase since December 2001.
Sheldon said the strong report would not cause the Federal Reserve to quickly raise short-term interest rates.
"It was what they expected. [Alan] Greenspan said last month that employment would pop," he said.
"They [the Fed] will want several months of job growth. If we get a string of 300,000 increases -- then they will tighten monetary policy," Sheldon added.
Brusca said the bond market was "still a kind of treacherous place to be" because Japan may resume intervening to support the yen. "It would be a mistake to conclude that the Bank of Japan is out of the picture," Brusca said.
Japanese demand for bonds, which officials buy using the proceeds of currency intervention, has been a key driver of higher bond prices and lower yields over the past several months.
Greg Robb is a senior reporter for CBS MarketWatch based in Washington
Friday, April 2, 2004 3:56 PM
- CBS MarketWatch.com
By Gregory Robb, CBS Marketwatch.com
Last Update: 3:56 PM ET Apr 2, 2004
WASHINGTON (CBS.MW) -- Treasury prices closed at two-month highs after the U.S. March unemployment data was much stronger than anticipated, raising the likelihood that the Federal Reserve will raise interest rates sooner rather than later.
Kevin Giddis, managing director of fixed income at Morgan Keegan & Company, said the strong employment report "is making the bond market sick to its stomach."
U.S. nonfarm payroll employment grew by its fastest rate in four years in March, rising by 308,000. See full story.
The increase was more than double expectations. The consensus forecast of Wall Street economists was for payroll growth of 122,000 in March.
"The report is pretty overwhelming. The clear reading here is things were better than we thought and are better than we expected," said Russ Sheldon, economist at BMO Nesbitt Burns in Toronto.
The benchmark 10-year Treasury note ($TNX) fell 2 1/16 points at 98 27/32. Its yield jumped to 4.14 percent vs. 3.89 percent at the previous U.S. close. This is the biggest rise in yields since last July.
This would be the highest close since Feb. 5, the day before the weak January jobs report cast doubt on the strength of the recovery.
"The bond market is clearly beating a hasty retreat as it ought to," said Robert Brusca, chief economist at Fact and Opinion Economics.
"We have enough economic growth and now we have job growth and we have flaring commodity prices. We are in a land where if job growth persists the Fed will have no mileage out of keeping rates steady. That is what the bond market can see," Brusca said.
"The markets view this as an all-clear signal that the economy is firing on all cylinders," Sheldon said.
Bill Tedford, fixed income strategist with Stephens Capital Management in Little Rock, Ark., said the bull market is over for bonds.
"It has been a long time coming, but I suspect this is the beginning of a march upward in interest rates that is going to go on for a good while," Tedford said.
Other analysts said it was still too early to buy the bull market.
"U.S. 10-yr note yields...have yet to confirm significantly higher yields ahead," said David Solin, partner at Foreign Exchange Analystics.
"I would keep a strong watch on the 4.20 to 4.25 area on the 10-year. If we move above there it is going to be a very bearish technical signal," said Josh Stiles, bond analyst at IDEAGlobal.
Stiles said he expected yields to get there eventually, though it might take another strong job report or a hawkish Fed speech to push the market to that level.
The 30-year bond ($TYX) plunged 2 3/4 to 105 26/32, yielding 4.98 percent vs. 4.80 percent.
The 2-year note slipped 7/16 at 99 10/32 to yield 1.86 percent vs. 1.62 percent. This is a rise of 24 basis points, the largest increase since December 2001.
Sheldon said the strong report would not cause the Federal Reserve to quickly raise short-term interest rates.
"It was what they expected. [Alan] Greenspan said last month that employment would pop," he said.
"They [the Fed] will want several months of job growth. If we get a string of 300,000 increases -- then they will tighten monetary policy," Sheldon added.
Brusca said the bond market was "still a kind of treacherous place to be" because Japan may resume intervening to support the yen. "It would be a mistake to conclude that the Bank of Japan is out of the picture," Brusca said.
Japanese demand for bonds, which officials buy using the proceeds of currency intervention, has been a key driver of higher bond prices and lower yields over the past several months.
Greg Robb is a senior reporter for CBS MarketWatch based in Washington