Treasuries rise after non-farm payrolls fall

10 Oct, 2010

Traders in the market for US Treasuries, who have been focusing their bets all week on Friday's September employment report, decided the 95,000-job decrease in non-farm payrolls was a good reason to buy US debt "The news is out, and it looks like the report was decidedly weak, especially when you factor in state and local government workers," said Raymond Remy, head of US fixed income at Daiwa Securities in New York.
He added that the market's move was based solidly on payrolls and not other factors. "I think that's why. That's the only reason." Benchmark 10-year Treasury notes added 9/32 in price to yield 2.36 percent, down from 2.39 percent at Thursday's close. Friday's trade pushed lows along the yield curve to another set of records, from two-year notes, which hit 0.35 percent, to seven-year notes, which fell to 1.71 percent.
"Today's payroll report is another nail in the coffin for the economy and my view is that QE will be re-established at the November FOMC meeting," said Thomas di Galoma, head of fixed income rates trading at Guggenheim Securities in New York, in a note to clients sent directly after the Labour Department's report.
The Treasury market has seen prices rise and yields plunge in recent weeks as a stream of weak economic data spurred calls for more support for the economy by the Federal Reserve. Beginning in August, Fed officials have publicly contemplated launching a program to increase liquidity in the financial markets, most likely through more Treasury purchases.
Treasury traders piled on bets that the Fed would buy more Treasuries, thus reducing the supply of US debt in the marketplace and driving up prices. As the data worsened, more and more Wall Street economists predicted Fed purchasing could begin after the next Federal Open Markets Committee meeting on November 3. "The things people were thinking about the economy haven't changed," Jay Suskind, senior vice president at Duncan-Williams in Jersey City, New Jersey. "They still think QE2 is coming, and if anything this number makes QE2 more likely."
Remy said he thought the market was overbought. Yet he predicted the 10-year yield could reach 2 percent before traders finished placing bets on more Fed buying. While the unemployment rate held steady at 9.6 percent, private-sector payrolls rose less than expected, adding only 64,000 new jobs compared with analysts' expectations for 75,000. Overall non-farm payrolls were expected to remain steady, but instead they fell.
The 30-year bond traded 13/32 higher in price, its yield falling to 3.69 percent compared to 3.72 percent at Thursday's close. The section of the yield curve on which Fed buying is most likely to have an impact is in the maturity range of six years to 10 years, traders say. The seven-year note gained 7/32 in price to yield 1.71 percent, down from 1.75 percent on Thursday. The Treasury market will be closed on Monday for the Columbus Day holiday.

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