Treasury note and bond prices changed little yesterday as positioning ahead of today's employment report dominated price action.

The 30-year bond ended yesterday's session down 3/32 to yield 6%, marking the third time this week that the benchmark bond closed at that level.

No news arose yesterday to wake the market from its slumber, and participants hope that the jobs report for September will provide trading with direction and retail investors with impetus to enter the market.

The employment figures will give the market its first comprehensive look at the economy's performance in September and, coupled with next week's round of inflation reports, is likely to set the tone for October's trading.

Estimates for nonfarm jobs ran the gamut, with some economists predicting that fewer than 100,000 jobs were created in September, while others forecasted an increase of more than 200,000. Forecasts of economists polled by The Bond Buyer center on an increase of 150,000 slots.

Market participants generally expect the figures to show that the economy is expanding, but not fast enough to create jobs or boost inflation. However, with estimates for the report sharply mixed, few investors are willing to place huge bets on the market.

"The market has been sitting by all week waiting for the employment report, and nothing has emerged to take the attention off that release," said Steven Wood, director of financial markets research at Bank of America in San Francisco.

But even if the employment statistics significantly deviate from expectations, traders fear that the market could remain stuck in current ranges, making it harder for investors to make money and fueling further speculation that economic fundamentals are beginning to work against the market.

The market's reluctance to use the employment report as the sole yardstick of the economy's performance is based on the fact that the recent rally, which brought long-term yields to their lowest levels in 25 years, was fueled primarily by good news on inflation. Most market participants believe that the fixed-income markets could weather a jump in employment as long as inflation remains under wraps.

"Inflation is the key to where the market is headed," said Brian S. Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson Inc. in Chicago.

Wesbury said that a sharp increase of 200,000 or more nonfarm payroll jobs in September would not severely hamper the market's ability to maintain current price levels. Rather, he believes a strong reading on employment is likely to send send market participants scrambling to find more clues about the state of economic and inflationary fundamentals.

"No matter what the jobs report shows, the market probably won't go very far until we've seen the consumer price and consumer price indexes," Wesbury said.

Positioning ahead of the jobs report has been dominated by dealers shifting their portfolios to cushion themselves from risk. Participants said most dealers and retail accounts are approaching the report with a flat position or slightly short, in anticipation that Treasury prices could fall in the event of a strong report.

"No one is going to have a long position going into the report," said Steven Ricchiuto, chief economist at Barclays de Zoete Wedd Securities Inc.

The short end of the U.S. Treasury market firmed slightly yesterday on the back of the Federal Reserve's addition of funds at the central bank's 11:30 a.m. window. The Fed added reserves to the banking system through a five-day system repurchase agreement, an operation which market analysts said was purely technical in nature to address the central bank's large add need for the current period.

Ricchiuto said the injection of reserves added liquidity to the short end of the market and helped calm fears that the Fed had fallen behind on its add need and that the federal funds rate would continue to soften.

Adding further support to the front end of the yield curve was municipal defeasance, as state and local governments continued to invest money in Treasuries with yields at their lowest level in a quarter of a century.

Economic statistics released yesterday had little market impact, and participants were inclined to either stay out of the market or set up for today's much-awaited jobs report.

The most significant economic release yesterday was initial weekly jobless claims, which fell by 9,000 to 320,000 in the week ended Oct. 10. While the claims figures have consistently improved in recent weeks, market participants were reluctant to conclude that the employment sector of the economy is improving.

"People are not going to conclude that the overall employment picture is improving until we see other reports, such as the employment report for September," said Bank of America's Steven Wood.

The market also shrugged off a strong wholesale trade report by the Commerce Department, which posted healthy August figures for sales and inventories and large upward revisions to July as well. Stockpiles of goods of wholesale merchants increased 1.1% to a seasonally adjusted $215.6 billion. Sales also increased by 1.1% to $162.2 billion.

The Mortgage Bankers Association's mortgage application index fell to 383.7 from 405.8 in the week ended Oct. 1. Refinancings dropped to 1576 from 1670, and the purchase index eroded to 168 to 177.1. Market analysts said the refinancing boom seems to have peaked, but they noted that home-buying interest is holding near an all-time high.

Late yesterday, the Fed reported its weekly money supply figures. In the week ended, M1 fell $1.7 billion, M2 fell $3.1 billion, and M3 fell $2.3 billion.

In futures, the September contract ended down 12/32 to 119.10.

In the cash markets, the 3 7/8% two-year note was quoted late yesterday up 1/32 at 100.03-100.04 to yield 3.80%; the 4 3/4% five-year note ended unchanged at 100.07-100.09 to yield 4.68%; the 53/4% 10-year note was down 1/32 at 103.05-103.09 to yield 5.49%; and the 6 1/4% 30-year bond was down 3/32 at 106.06-103.10 to yield 6.00%.

The three-month Treasury bill was down two basis points at 2.98%; the six-month bill was down two basis points at 3.08%; and the year bill was down one basis point at 3.21%.

Treasury Market Yields !!!BEGIN TABLE Prev. Prev. Thursday Week Month3-Month Bill 2.98 2.96 3.036-Month Bill 3.08 3.12 3.161-Year Bill 3.21 3.35 3.342-Year Note 3.80 3.85 3.873-Year Note 4.09 4.16 4.155-Year Note 4.68 4.76 4.737-Year Note 4.88 4.95 4.9410-Year Note 5.31 5.37 5.3430-Year Bond 6.00 6.01 5.95!!!END TABLE

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.