The weak October employment statistics helped Treasury prices rally Friday morning, but the long end of the market gave back its gains during the afternoon as the upcoming auctions increased nervousness in that sector.
The 30-year bond closed 1/4 point lower, and 3/4 point off the session highs, to yield 7.93%, while short-term notes ended with small gains.
Last month's jobs data came in weaker than expected, as October nonfarm payrolls fell 1,000 when the consensus forecast had been for a 20,000 gain. The unemployment rate rose 0.1-point to 6.8%.
Other signs of weakness in the report included the 0.2-point decline in the work week, to 34.3 hours, and the 0.1-point decrease in average hourly earnings, to $10.41.
"We have fewer people working for less hours and less pay," summed up Lacy Hunt, chief economist in the United States for the Hongkongbank Group.
The report confirmed Federal Reserve Chairman Alan Greenspan's description last week of a "sluggish" economy that seemed to be losing the momentum that existed a few months ago.
"Whatever spark there was in the summer months is fizzling away in late summer and early autumn," said Martin Mauro, a senior economist at Merrill Lynch.
Other statistics released last week showed the housing sector is not responding to lower interest rates and consumer confidence is off sharply, Mr. Mauro said. "It's not a pretty picture, especially heading into what for retailers will be the most important time of the year."
After the employment statistics were released, some economists
Treasury Market Yields
Friday Week Month
3-Month Bill 4.87 5.11 5.14
6-Month Bill 4.95 5.24 5.29
1-Year Bill 5.00 5.31 5.33
2-Year Note 5.62 5.93 5.93
3-Year Note 5.91 6.19 6.19
4-Year Note 6.05 6.34 6.36
5-Year Note 6.71 6.91 6.86
7-Year Note 7.13 7.32 7.22
10-Year Note 7.46 7.63 7.46
15-Year Bond 7.76 7.83 7.72
30-Year Bond 7.93 8.02 7.83
Source: Cantor, Fitzgerald/Telerate
predicted the Federal Reserve would cut the discount rate before the end of the day, but that did not happen. Some traders and analysts still think a discount rate cut could occur either today or tomorrow morning, before the refunding auctions start.
But Jan Hurley, a market strategist at Chase Securities, said it would be out of character for the Fed to ease again so soon after signaling a 25-basis-point cut in the funds rate last Wednesday.
"This Fed has never moved that far this fast," Ms. Hurley said.
If the Fed holds the discount rate steady as she expects, the Treasury market may back up a little going into the refunding auctions, she said.
The Treasury will sell $38 billion of coupon securities this week, including $14 billion of three-year notes tomorrow, $12 billion of 10-year notes Wednesday, and $12 billion of 30-year bonds Thursday.
Ms. Hurley expects the three-year and 10-year note auctions to go well. But she said the prospects for the bond auction are "problematic," given the long end's many woes, including Japanese selling of Strips and the possibility of tax cuts.
"And people feel we're close to, if not at the lows in rates, and that's not when you want to lock in long-term interest rates," she said.
Market participants do not expect the changes in bidding procedures announced recently to have much impact on this week's auctions.
And there are very few indicators to distract the market from supply considerations.
Mr. Hunt expects tomorrow's late-October car sales to come in at 6 million or lower, but said neither car sales nor the consumer installment credit report on Thursday were likely to move Treasury prices.
A couple of other indicators were released Friday morning, but were ignored by the market. September leading indicators fell 0.1%, the first decline since January. And September construction spending rose 1.1%, following a revised 0.4% gain August.
The market rallied right after the jobs data came out, then drifted a little lower when it became clear the Fed was not going to respond with an immediate cut in the discount rate.
During the afternoon, short-term prices held their ground while the long end slid lower.
Traders said the same old problems continue to plague the long end, including the prospect of a tax package and renewed selling of Strips by Japanese investors. The situation is exacerbated by the $12 billion of 30-years to be sold this week.
When the long bond failed to break through an important resistance level Friday, prices began to move lower, and the decline picked up momentum as the market broke through several technical support levels, a bond trader said.
The December bond future contract closed 1/4 lower at 99 18/32.
In the cash market, the 30-year 8 1/8% bond was 1/4 point lower, at 102 2/32-102 6/32, to yield 7.91%.
The 7 7/8% 10-year note fell 3/32, to 102 21/32-102 25/32, to yield 7.46%.
The three-year 6 7/8% note was up 1/8, at 102 11/32-102 13/32, to yield 5.91%.
In when-issued trading, the 30-year bond to be sold Thursday was quoted at 7.91%, the 10-year note to be sold Wednesday was bid at 7.46%, and the three-year to be auctioned tomorrow stood at 5.95%.
Rates on Treasury bills were lower, with the three-month bill down eight basis points at 4.76%, the six-month bill off seven basis points at 4.78%, and the year bill six basis points lower at 4.77%.