The shocking drop in Novembre nonfarm payrolls pushed Treasury prices higher Friday, but profit taking whittled away a big chunk of the gains before the session's close.

The 30-year bond ended 1/2 point higher, where it yielded 7.79%, after having been up as much as 1 3/8 points during the morning.

As expected, the dismal jobs data resulted in another 25-basis-point cut in the fed funds rate, to 4 1/2%, and many analysts said another Fed easing is possible before the end of the year, given the weakness in the employment statistics.

Friday's rally began overseas as foreign investors reacted to Treasury Secretary Nicholas Brady's remark late Thursday that the Treasury was considering shifting some debt issuance toward the short end of the curve.

Treasury Market Yields

Prev. Prev.

Friday Week Month

3-Month Bill 4.33 4.46 4.74

6-Month Bill 4.37 4.55 4.86

1-Year Bill 4.49 4.66 4.93

2-Year Note 5.16 5.36 5.60

3-Year Note 5.51 5.73 5.95

4-Year Note 5.64 5.83 6.04

5-Year Note 6.27 6.47 6.65

7-Year Note 6.73 6.94 7.06

10-Year Note 7.22 7.36 7.40

15-Year Bond 7.49 7.70 7.71

30-Year Bond 7.79 7.93 7.87

Source: Cantor, Fitzgerad/Telerate

That news pushed the 30-year

bond 3/4 higher before the jobs report

came out, and the entire market

rallied on the news that November

payrolls had fallen 241,000. The

market had expected only a

40,000-job decline.

October's payrolls level was revised

to a 4,000 increase from the

1,000 decline originally reported.

The market focused on the payrolls

number rather than the

steady 6.8% unemployment rate

because it is regarded as a more accurate

indicator.

Some analysts said a number of

special factors exaggerated the

weakness in November.

The 95,000-job loss in construction

was partly attributable to bad

weather in the Midwest, and retail

employment fell 111,000 because

of a sharp decline in the amount of

Christmas hiring by all types of

stores, an effect that will be reversed

after the holidays.

And Janet Norwood, the commissioner

of the Bureau of Labor Statistics,

said changes made in the

seasonal factors were responsible

for some of the weakness; without

those changes, payrolls would have

fallen only 170,000, she said.

But a number of economists said

even after those explanations, November's

report looked weak.

"In an economic recovery, payrolls

are supposed to be up

170,000, not down 170,000," said

Paul Kasriel, a monetary economist

at Northern Trust Co.

Mr. Kasriel said the single most

telling number in the report was

the 33,000 decline in manufacturing

employment.

"Manufacturing had been the

one bright light in the economy and

it's going out," he said. "The economy

is flirting with slipping back

into recession."

The Fed's quick reaction indicated

it was cncerned. Analysts said

the Fed's customer repurchase

agreements Friday translated into

a 25-basis-point cut in the funds

rate, and many expect another

round of easing before yearend.

Long-term prices came off their

highs fairly quickly Friday and

traders said some retail and speculative

accounts decided to sell securities

to take profits, since the end

of the year is now in sight.

"The street saw a great number,

pushed the market to the moon,

and there were no buyers," a salesman

said.

Once the buying stopped, profit-taking

took over, and the situation

was exacerbated by the relatively

thin December market, he said.

"Traders at most primary dealers

get their bonuses in January and

February, so they don't take risks

in December," the salesman said. "So

there's no liquidity."

Peter Mayers, assistant treasurer

at Bank Julius Baer, said the intermediate

sector, which had been the

star performer for most of the week,

put in the worst performance

Friday.

"Basically both ends did better

than the middle," Mr. Mayers said. "I

think a lot of that has to do with

people who were in spread trades,

who were short the long bonds and

long intermediates."

That had been a profitable trade,

since the intermediate sector was

booming and long-term prices were

stuck in the mud. Buat after Mr. Brady

talked about reducing long-term

issuance, investors got scared

about being short long-term paper

and rushed to take off their spread

trades by buying bonds and selling

intermediate paper, Mr. Mayers

said.

Short-term prices held onto their

gains best Friday, and he said the

profit taking may have been fiercer

at the long end because that sector

had seen the biggest price improvement

early in the day.

The question of changes to the

Treasury's bond auctions may continue

to affect the long end.

When long-term yields failed to

make much headway over the last

two months, some economists suggested

that the Treasury eliminate

or reduce the supply of bonds in order

to lower yields and stimulate

the economy.

But it was unclear from Mr. Brady's

polite response to a congressman's

query Thursday how seriously

the Treasury was taking the

idea.

Traders said the most likely outcome

was a small cut in the size of

the 30-year auction.

Some analysts questioned how

much impact the move would have

on the economy and said a government

that has to finance an astronomical

deficit ought not to limit its

options.

The March bond futures contract closed at 100 16/32, up 19/32 on the day.

In the cash market, the 30-year 8% bond was 9/16 higher, at 102 8/32-102 12/32, to yield 7.79%.

The 7 1/2 10-year note closed unchanged, at 101 26/32-101 30/32, to yield 7.22%.

The three-year 6% note was up 3/16, at 101 7/32-101 0/32, to yield 5.51%.

Rates on Treasury bills were lower, with the three-month bill off 10 basis points at 4.24%, six-month bill 13 basis points lower at 4.23%, and the year bill 10 basis points lower at 4.30%.

Fed's Forex Report

U.S. monetary authorities did not intervene at all in the foreign exchange markets in the three months ending Oct. 31.

That compares with the $150 million of intervention in the previous three-month period.

Margaret Greene, senior vice president of the New York Fed, said the dollar's activity during the period ending Oct. 31 could best be described as "episodic and spotty" as it moved moderately lower.

Slower-than-expected economic growth was a large contributing factor to the decline of the dollar, according to a report issued by the New York Fed.

One of the biggest single events affecting the dollar was August's failed coup in the Soviet Union. This event caused a surge in demand for dollars, setting off a 4% rise in the dollar against the German mark. But by the time the markets opened in New York, the Soviet situation had stabilized and there was no need for U.S. intervention to lower the dollar.

The dollar floundered in late August and early September on downward revisions to second-quarter gross national product report and the July payroll data.

At the same time, the Bundesbank's tendency toward a tighter monetary policy weighed on the dollar.

The dollar got some support in early October from developments in Eastern Europe.

Also, fairly unexpectedly, some of the economic data suggested a turn for the better. But that optimism soon faded as Fed Chairman Alan Greenspan made comments about the weakness of the current economy, helping to drive the dollar lower.

At the close of the period, the dollar was 9% below its 1991 high against the German mark. Against the Japanese yen, it was more than 8% below its 1991 high.

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