Thursday February 4, 10:58 pm Eastern Time
US CREDIT OUTLOOK - January U.S. jobs data eyed
NEW YORK, Feb 4 (Reuters) - If stronger-than-expected January U.S. jobs data Friday amplify the drumbeat of economic strength, the noise is likely to be drowned out by the whistling of rapidly falling U.S. Treasury prices, analysts said.
''The market has really taken it on the chin here for the last several days based, I suppose, on concerns that the economy is too strong,'' James Kochan, a bond market strategist at Robert W. Baird & Co, said. ''And tomorrow, if we get a very strong employment release, it seems to me we could get hit again. We could visit 5-3/8 (percent bond yield) very easily.''
The benchmark 30-year bond was down 26/32 at 99-4/32 to yield 5.31 percent at the 1500 EST/2000 GMT futures close. The drop marked the bond's fourth straight losing session.
Economists polled by Reuters, on average, expected non-farm payrolls to rise by 135,000 in January, down from December's 378,000 rise.
Last Friday's 5.6-percent rise in fourth quarter gross domestic product and Monday's National Association of Purchasing Management (NAPM) index helped foster market concern about economic strength, Kochan said. The NAPM index rose to 49.5 in January from a revised 45.3 reading in December.
''Certainly the GDP was one (factor), that was a big surprise, how strong that was.'' Kochan said. ''And the purchasing managers' index for January bounced a lot more than anybody anticipated, (and) sort of undid all the talk of all the slow down in manufacturing,'' Kochan said.
The Treasury's $35 billion refunding also looms next week.
''People remember the last refunding was a disaster,'' Kochan said. ''They want to see the yields higher before the auctions, not after like we did last time. That's when we saw 5-3/8 on the long bond last. Every auction went worse than the one before.''
Getting the price adjustment prior to the auction and not in the middle of it is ''healthier,'' Kochan said.
John Canavan, a Treasury market analyst at Stone & McCarthy Research Associates, said a 5-3/8 percent long bond yield is certainly within in reach Friday if the jobs data comes in much stronger than expected.
''I don't think that is at all unrealistic,'' Canavan said.
Stone & McCarthy's payrolls forecast calls for a rise of only 84,000 for January, Canavan said.
''I think people are going to be pretty concerned on anything over 200,(000),'' he said.
The analyst added that the market may be a bit more prepared than it had been for a stronger-than-expected report given since-denied rumors that circulated Thursday. Rumors that the jobs report had been released early and was stronger-than-expected helped contribute to the market's early back up, the analyst said.
On the flip side, a weaker-than-expected employment report is unlikely to give the market much of a lift, Canavan said.
''I don't think it's going to provide a great deal of help in the current environment to be honest with you just because everything else just shows such tremendous strength,'' the analyst said. ''The market is in such a technical and fundamental malaise as it is, that this one number, (even) if it is a little better-than-expected, it's not going to turn very unhappy people happy at this point.''
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