Treasury prices posted strong gains Friday on the mixed August employment report, which left the door open for another easing move by the Federal Reserve.
Late in the afternoon, the 30-year bond was almost a point higher and yielded exactly 8%.
Traders said the buying seen in the wake of the employment report was impressive.
"the market just has a great tone to it," a government note trader said. "There was only one setback all day, and that was met by buying."
Even the Fed's failure to signal an easing move, which many traders had hoped would happen Friday morning, did not stop the market from moving higher.
Analysts said the mixture of strong and weak numbers in the jobs report gave the Fed room to ease policy again, but did not force it to move immediately.
The good news for the bond market included the modest 34,000 gain in August payrolls, close to the 25,000 consensus forecast, and a downward revision to July's decline, which now stands at 73,000, after having been reported as a 51,000-job drop last month.
"Employment has bacically shown no growth since May and that's not generally the kind of direction you'd like to see early in an economic recovery," said Robert Chandross, chief economist at Lloyds Bank.
Continuing the pattern seen in other recent reports, much of the improvement occurred in manufacturing, which gained 42,000 jobs, while little strength was seen in construction or in the service sector, excluding health care.
Analysts said the increases in the work week and hourly earnings were not as impressive as they looked, since both components had declined in July. Nor did they count the 6.8% unemployment rate, unchanged from July, as a plus, since it only occurred because the size of the workforce fell again last month.
In fact, that decline is a bad sign for the economy, since it probably indicates some workers have given up on finding jobs, said Joel Naroff, a senior economist at Fidelity Bank. Only people who are working or looking for work are counted in the labor force.
Most economists said the mediocre performance of the labor market makes it likely the Fed will ease again to make sure the recovery continues. But since the August jobs statistics showed some strength, the Fed can take its time and wait to see more numbers, they said.
"I think the Fed will ease, but they could wait at least until we get the consumer and producer price indexes" late this week, Mr. Chandross said.
"I think they would like to see long-term rates come down a bit," he added. "They want to be very careful in timing things so as not to upset the long end."
Martin Mauro, a senior economist at Merrill Lynch, expects the Fed to ease "in a few weeks," after it sees more numbers, including more money supply statistics and Friday's retail sales report for August.
Prices surged Friday morning as soon as the jobs report was released, settled in at higher levels late in the morning, then reached the day's highs near the close of the futures market.
Henry Copeland, a Treasury trader at Bank Julius Baer, said the lack of upcoming supply might have encouraged retail buying Friday.
The next coupon auctions aren't until the end of the month, and the next quarterly refunding is two months away. "It's a while before the next shipment of inventory comes in," he said.
And even though the Fed did not announce any change of policy Friday, traders said hopes for an easing underpinned the market's good mood. "The general bias is the next move is to ease," the note trader said.
The market's strong showing Friday suggests the long bond may be able to break through 8% this week, traders said.
Traders reported Friday that retail accounts continued to extend the maturity of their holdings in an effort to improve their returns, and Mr. Copeland said thirst for higher
Treasury Market Yields
Friday Week Month
3-Month Bill 5.44 5.48 5.46
6-Month Bill 5.54 5.59 5.60
1-Year Bill 5.63 5.71 5.76
2-Year Note 6.23 6.34 6.44
3-Year Note 6.55 6.64 6.84
4-Year Note 6.70 6.79 6.97
5-Year Note 7.22 7.31 7.48
7-Year Note 7.56 7.64 7.80
10-Year Note 7.75 7.80 7.96
20-Year Bond 7.94 7.99 8.20
30-Year Bond 8.00 8.05 8.22
Source: Cantor, Fitzgerald/Telerate
yields might be the factor that propels the 30-year through the 8% mark.
"If bonds start to get through 8% one more time and guys get panicky, it's going to be a grab-fest," he said.
The December bond future contract closed 27/32 higher at 97 27/32.
In the cash market, the 30-year 8 1/8 0/0 bond was 15/16 higher, at 101 6/32-101 10/32, to yield 8%.
The 7 7/8% 10-year note rose 19/32, to 100 23/32-100 27/32, to yield 7.75%.
The three-year 6 7/8% note was up 5/16, at 100 25/32-100 27/32, to yield 6.55%.
Rates on Treasury bills were lower, with the three-month bill down four basis points at 5.30%, the six-month bill off five basis points at 5.33%, and the year bill seven basis points lower at 5.34%
U.S. monetary authorities intervened to halt the rise of the dollar once in May and again in July, selling a total of $150 million for German marks, the Federal Reserve Ba k of New York said Friday.
The two actions were taken in cooperation with other central banks, and were the only U.S. foreign exchange market operations during the 3-month period ending July 30.
The announcement Friday, the first official confirmation of intervention activity during the period, noted that the dollar showed little net change from May to July. Despite signficant shifts in the middle of the period, by the end of July the dollar had risen only about 2% against the mark, 1% against the Japanese yen, and slightly less than 1% on a trade-weighted basis.
The first intervention of the three-month period, on may 17, involved the sale of $50 million for marks in response to a "sudden and sharp change" in the exchange rate between the two currencies, the Fed said.
The situation was sparked by an announcement that Sweden would link the Swedish krona to the European Currency Unit, replacing its trade-weighted basket of currencies in which the dollar carried the heaviest weight.
Investors reacted to the decision by purchasing dollars, with most of the resulting exchange rate pressure falling on the mark.
The second intervention, on July 12, came and changing market expectations of interest rate differentials between Germany and the United States, the Fed said.
When the Bundesbank failed in mid-July to raise interest rates as expected and employment in the U.S. appeared to be improving, the dollar began to rise. U.S. monetary authorities reacted with the sale of $100 million for marks in conjuction with other central banks.
The Fed also reported Friday that in off-market transactions -- currency exchanges directly between central banks that are not intended to affect the market -- the United States sold $8.5 billion of federal Reserve and Treasury foreign currency balances.