Jobs data reverse Treasuries price rise
news.ft.com
By Jenny Wiggins in New York, Rebecca Bream in London and Ken Hijino in Tokyo
Published: November 1 2002 18:40 | Last Updated: November 1 2002 21:40
Government bond prices rose this week as weak economic data and press articles hinting at an interest rate cut convinced the US Treasury market the Federal Reserve will ease its monetary policy next week.
On Friday, however, US Treasury prices were sharply lower after the eagerly awaited unemployment figures were less negative than had been feared. "There's a little relief," said Sean Horrigan, bond trader at Legg Mason. "People were expecting doom and gloom."
The October unemployment rate rose only 0.1 per cent, to 5.7 per cent, while a 5,000 drop in payrolls was roughly in line with expectations. Economists said the data was consistent with an economy that is growing but at a rate insufficient to produce job growth. The mildly comforting data tempered expectations that the Fed may cut rates by 50 basis points to boost the economy and the market is now anticipating only a 25 basis point cut on November 6.
The US manufacturing sector continues to struggle, with the Institute of Supply Management on Friday reporting its October index dropped to 48.5 from 49.5 in September. On Friday the 10-year note fell 25/32 to 1031/16 with a yield of 3.990 per cent and the 30-year bond was 11/16 lower to 1053/32 to yield 5.035 per cent. The two-year note lost 1/8 to 10023/32 to yield 1.749 per cent.
While European government bond markets had been rallying for most of the week, prices fell on Friday in line with the US.
The yield on the two-year German Schatz rose 5.5 basis points to 3.11 per cent, while the 10-year Bund yield gained 7 basis points to 4.55 per cent. The December 10-year Bund future fell 0.67 to 110.77 and in the UK Gilt market the December 10-year future contract settled down 0.36 at 118.84.
The euro and sterling markets are failing to find their own direction, with traders still undecided on whether the European Central Bank and the Bank of England will cut interest rates at their meetings next week.
Japanese government bonds extended gains on Friday but investors remained wary of chasing prices higher ahead of a key bond auction for five-year notes next week.
The key December 10-year JGB futures contract rose 0.14 to 142.12, while the 243rd 10-year cash JGB gained 0.091 to 101.122, pushing down the yield by 0.010 to 0.975 per cent.
Investor sentiment was boosted earlier in the week by the government's economic measures, including a decision by the Bank of Japan to step up its monthly purchases of bonds. The key 10-year futures touched a record high for the third consecutive day and the yield on the benchmark 10-year remained under 1 per cent.
Investors doubt the rapid gains can continue next week, however, as the government is selling ¥1,900bn of new five-year JGBs on Thursday. |
