For all the reports that blow through trading floors each month, the Treasury market relies on a select few to gauge the economy's performance.
Today's November employment report is one of the best barometers for the market, and prices ended lower across the board yesterday as participants set positions for the release.
The benchmark mark 30-year bond ended down more that 1/4 point, to yield 6.27%.
Market players are anxiously awaiting the employment report, as it will provide the first comprehensive view of the economy's performance last month and show whether the recent acceleration in economic activity is translating into job growth
The report will also set the tone for trading into yearend, as market analysts rummage through the data for clues about where the economy is headed, and retail investors decide whether or not to close their books for the year.
Treasury prices cascaded lower in recent weeks as a mountain of reports painted a more optimistic picture of economic growth. For the first time in months, dealers are seeing longterm accounts liquidating long positions. And for the first time in weeks, the market is taking the recent down-draft in prices seriously, instead of discounting it as a consolidation.
Many investors stayed in the market, however, fueled by the believe that the recent string of better economic numbers will be short-lived and that growth will stall in the first and second quarters of 1994. Observers point to a number of factors that will tend to hinder any pickup in economic growth next year and lend support to the bond market.
What has been absent from the ongoing acceleration in the economy is job creation. While many sectors of the economy are picking up steam and consumers are gaining more confidence that conditions are improving, companies continue to shrink work forces instead of adding to them. Bond investors are hoping today's employment report shows that scenario remains in place.
"The bond market is going to have problems if the number comes in strong," said Charles Lieberman, director of financial markets research at Chemical Securities Inc.
Economists polled by The Bond Buyer generally expect a 180,000 increase in nonfarm jobs. Lieberman expects to see an increase of about 200,000 jobs.
Lieberman said strong news on the economy and the belief that upcoming releases will provide further evidence of the economy's firm footing weighed on the minds of players yesterday and put downward pressure on Treasury prices. Buying interest dried up and players set positions for the employment report.
Adding to the selling pressure were rumors that a Johnson Smick report asserts that the Clinton Administration would not oppose a 50 basis point tightening of monetary policy. Traders said talk of higher rates has taken the life out of the front end of the market.
Economic data released yesterday failed in garnering the market's interest. Personal income rose 0.6% in October and personal spending rose 0.8%, in line with market expectations. Initial claims for the week ended Nov. 27 fell 17,000 to 32 1,000,
"The spending, income, and jobless claims reports did little more than support the trends we're seeing in the economy," said Frederick Sturm, a money market economist at Fuji Securities Inc. "The economy is on a moderate growth path."
The Commerce Department reported that new home sales fell 6.5% in October to a 678,000 rate from a revised 726,000 rate for September Economists interpreted the decline as a retreat from the huge September gain.
Sturm said the report was consistent with signs that the housing boom of 1993 has plateaued. He pointed to the Mortgage Bankers Association of America's recent refinancing indexes.
For the week ending Nov 26, the overall index fell to 879.0 from 1015.1 in the prior week. In its latest report, the industry group said that loan applications for the week ending Nov. 26 fell 36%. it said the drop was due mainly to the Thanksgiving holiday.
Laura D'Andrea Tyson, chairman of the President's Council of Economic Advisers, said lower than expected price pressures may cause the administration to revise its 1994 inflation forecast downward.
Tyson, speaking to reporters in Washington, said any revision would be minor. The administration is currently forecasting a 3.2% inflation rate in 1994.
Tyson reiterated the administration's forecast that gross domestic product would expand at a 4% rate in the fourth quarter of 1993. Economic growth accelerated to a 2.7% rate in the third quarter. Tyson said that would translate into 3% growth for the second half of 1993.
In futures, the December contract ended up 3/32 to 115.30.
In the cash markets, the 4 1/4% two-year note was quoted late yesterday unchanged at 100.02-100.03 to yield 4.20%. The 5 1/8% five-year note ended down 4/32 at 99.27-98.29 to yield 5.14%. The 5 3/4% 10-year note was down 8/32 at 99.18-99.22 to yield 5.79%. And the 6 1/4% 30-year bond was down 10/32 at 99.16-99.20 to yield 6.27%.
The three-month Treasury bill was unchanged at 3.12%. The six-month bill was down one basis point at 3.26%, and the year bill was up one basis point at 3.46%.Treasury Market Yields Prev. Prev. Thursday Week Month3-Month Bill 3.12 3.12 3.126-Month Bill 3.26 3.27 3.271-Year Bill 3.46 3.46 3.402-Year Note 4.20 4.18 4.143-Year Note 4.52 4.49 4.515-Year Note 5.14 5.13 5.067-Year Note 5.33 5.33 5.2710-Year Note 5.79 5.80 5.6830-Year Bond 6.27 6.30 6.20Source: Cantor, Fitzgerald/Telerate