US government debt prices fell sharply on Friday after US employment data pointing to a tighter labour market persuaded some investors that the Federal Reserve might not cut interest rates as soon as some had expected.
The US Labour Department said employers added just 51,000 jobs to non-farm payrolls in September, but economists said upward revisions to July and August job growth and a drop in the unemployment rate to 4.6 percent in September from 4.7 percent in August suggested that the economy was running near full employment.
"Unemployment fell to a lower rate than expected so the labour market still looks pretty tight, underlining some lingering concerns about wage inflation," said Gary Thayer, chief economist at A.G. Edwards and Sons in St. Louis. "Some investors are concerned that the Fed will hold rates at a high level and not ease if the labour market looks tight."
Fed funds futures fully reflected expectations that the Fed would hold its benchmark federal funds rate steady at 5.25 percent at its October policy meeting after the employment report. Futures also trimmed the chance of a December rate cut to 6 percent from 12 percent previously, and the chance of a January rate cut to 20 percent, from 30 percent previously, according to fed funds futures contracts.
The 51,000 new job count for September, far below estimates for a gain of 125,000 new jobs, briefly pushed Treasury prices higher when it was first released, traders noted.
"But after seeing some of the details Treasuries headed lower," said John Canavan, market analyst with Stone and McCarthy Research in Princeton, New Jersey. "The data overall were not nearly as weak as the headline number for September job growth suggested," he added.
In late trade on Friday, the benchmark 10-year Treasury note was down 22/32 in price to yield 4.70 percent versus 4.61 percent late on Thursday. The 2-year note, which is most sensitive to expectations for Fed interest rate moves, plunged 5/32 in price, its yield soaring to 4.75 percent versus 4.66 percent late on Thursday. It was the largest rise in the two-year note's yield since mid-July.
Payrolls for August were revised up to a gain of 188,000 from an originally reported gain of 128,000, while July was revised to a gain of 123,000 from 121,000.
Some economists argued that the bond market reacted less to the specific job growth numbers for August and September and more to potential annual revisions to the employment data.
"If you combine August and September, the average is still lower than people were expecting, so (bonds) wouldn't react that much to that," said Nigel Gault, director of US economic research at Global Insight in Boston.
On the other hand, the Labour Department said its initial estimate of its annual revisions for the 12 months up to March 2006 showed that the US added 810,000 more jobs than earlier thought, the biggest such revision since the department began constructing them in 1991.
Friday's employment report also showed average hourly earnings rose by a lower-than-expected 0.2 percent, or 4 cents, last month, after an upwardly revised 0.2 percent gain in August.
Analysts in the Reuters poll had expected a 0.3 percent rise in September. But in both September and August, average hourly earnings were up 4.0 percent over a year earlier, the largest rise since a 4.1 percent gain in March 2001. The August figure was revised up from a 3.9 percent year-on-year gain.
Comments
Comments are closed.