US government debt prices fell on Friday as news of steady job growth in February reinforced the notion the US economy is gaining traction, spurring investors to trim their low-yielding debt holdings and buy stocks and other growth-oriented assets. Next week's $66 billion worth of coupon-bearing debt also weighed down bond prices, as dealers and investors prepared to make room for new supply, analysts said.
"The (jobs) number looks very good," said Mike Materasso, co-chair of the fixed-income policy group at Franklin Templeton based in San Mateo, California, which oversees more than $300 billion in fixed income. "While US appears to be doing better than six months ago, the rest of the world looks slower." The US Labour Department said US employers added more than 200,000 jobs for a third straight month, although the jobless rate stalled at a three-year low of 8.3 percent.
Market losses shortly before and after the release of the government's payroll data were mitigated by bargain-hunting, which was led by fund managers and overseas central banks, after longer-dated yields touched the top end of their trading range established since last November, traders said. Another factor that limited market losses was a decision from a derivatives group that ruled Greece's debt restructuring qualified as a credit event, which triggers the payout of credit default swaps worth over $3 billion.
Persistent doubts about Greece's financial future, and whether the recent spate of better-than-expected US economic data curbed the decline in bond prices as well. "There is a nagging feeling on whether we are in for weaker data after the first quarter," Materasso said. For now, however, there is the growing perception US economic growth is on a self-sustained path without the need of more stimulus from the Federal Reserve.
This view has exerted selling pressure on the shorter-dated Treasuries, which are more sensitive to the outlook on Fed policies than longer-dated issues. The Fed's $8.6 billion worth of short-dated notes from its holdings on Friday, as a part of its $400 billion "Operation Twist" program to help the economy, was also a drag on short-dated Treasuries.
The yield on two-year Treasuries touched 0.3257 percent, its highest level in more than seven months. It last traded down 1/32 with a yield of 0.322 percent, up 1 basis point from late Thursday. While another strong jobs report was negative for bonds, its impact was muted as traders gauged the valuation for the upcoming government note supply and hedged against any surprise announcement from the Fed.
The Federal Open Market Committee, the central bank's policy-setting group, will hold a one-day meeting on Tuesday. Some analysts see the likelihood the FOMC might signal to embark on more bond purchases in an effort to lower mortgage rates and long-term borrowing costs to stimulate the economy.
In the meantime, the US Treasury Department will sell $32 billion in three-year notes on Monday; $21 billion in 10-year debt on Tuesday and $13 billion in 30-year bonds on Wednesday. "Now the (jobs) news is out and the market needs to reassess," said Raymond Remy, a Treasury trader at Daiwa Securities in New York. "The things to keep in mind are you have an FOMC meting on Tuesday and you have a ton of supply next week."
Next week's US bond supply could also include another wave of corporate bonds and compete with the new Treasuries. The US investment-grade corporate bond market set a weekly record for supply on Friday with $40.39 billion of deals. It surpassed the prior record of $38.5 billion sold in the week of May 9, 2008, according to IFR, a unit of Thomson Reuters.
In mid-afternoon trading, benchmark 10-year Treasury notes were down 6/32 in price with a yield of 2.04 percent, up 3 basis points on the day and up nearly 6 basis points on the week. The 30-year bond last traded down 7/32, retracing three-quarters of the drop shortly after the jobs data. The 30-year yield was 3.19 percent, up 1 basis point from Thursday. The 30-year yield is on track to rise 8 basis points from last Friday, which would be the biggest single-week jump in seven weeks.
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