Treasury prices barely stirred yesterday as traders and investor waited for today's November employment report.
Yesterday's economic news was mostly strong, but the market paid little attention to the reports. Analysts said the numbers were over-shadowed by today's jobs data, which will give the first comprehensive look at how the economy performed last month.
Traders said the thin flows and steady prices were not surprising: "We always come to a total stop the day before the employment report," a note trader said.
Late in the afternoon, the 30-year bond was up 1/8 point to yield 7.55% and note prices were unchanged to slightly higher on the day.
Economists surveyed by The Bond Buyer on average expect a 69,000 rise in November nonfarm payrolls. Individual forecasts ranged from a 25,000 decline to a 150,000 increase, but most predicted job increases of 50,000 to 100,000 jobs.
Most of the economists expect the unemployment rate to come in unchanged at 7.4%.
A 69,000 rise in November payrolls would mark an improvement from the 27,000 jobs added in October, but economists said that kind of increase indicates the economy is still growing at a sluggish rate.
Even though activity was quiet this week, traders said they were impressed by the bond market's ability to stand its ground in the face of some strong economic reports. That performance suggests prices could improve today if the report comes in as expected, they said.
But the bond market's response to the jobs data will be limited by its worries about what President-elect Bill Clinton may do to spur the economy.
Traders said any sell-off on a stronger-than-expected report will be tempered by the belief that better growth makes a big fiscal stimulus package less likely, while a rally on an unexpectedly weak number would be capped by worries about more aggressive fiscal stimulus.
"You want a number that's soft, but not too soft." said Jerry Zukowski, an economist at Paine Webber Inc.
The Treasury market started off the session yesterday by edging lower on the news of an unexpected large decline in jobless claims.
The Labor Department said new claims for unemployment insurance fell 12,000, to 362,000, in the week ended Nov. 21, when the consensus forecast called for a 2,000 rise in claims in the previous week, during which the survey for today's unemployment report was conducted, the number of people receiving state benefits dropped 106,000, to 2.927 million.
The other morning numbers, chain store sales and October factory orders, showed smaller-than-expected gains.
Michael Niemira, business economist at Mitsubishi, said even though November chain store sales improved less than expected, the results were not as bad as they looked. He attributed this to the fact that some of the weakness was due to the fact that there were only four Saturdays this November, down from five in 1991.
Month over month, chain store sales were down 0.1%, which suggests November retail sales will come in flat, he said.
October factory orders rose only 1.7%, instead of the 2.3% gain economists expected, because the increase in durable goods orders was offset by a 0.7% decline in nondurables.
The biggest surprise in the economic news was the jump in late November car sales to a 7.2 million annual rate, from the 5.8 million sales pace during mid-November. That was a bigger increase than economists expected and pulled the month's sales pace up to a respectable 6.2 million, not far from October's 6.3 million rate.
Late in the afternoon, Treasury prices got a little lift from the report of a huge decline in the M2 measure of money supply.
A spokesman for the Federal Reserve Bank of New York said at the bank's weekly press briefing that the M2 aggregate plunged $15.7 billion to $3.5 billion in the week ended Nov. 23, while the M1 money supply fell $8.6 billion to $1 trillion and M3 declined $5.7 billion, to $4.2 trillion.
The March bond futures contract closed 1/8 higher at 102 10/32
In the cash market, the 7 5/8% 30-year bond was 3/32 higher, at 100 23/32-100 27/32, to yield 7.55%.
The 6 3/2% 10-year note rose 3/32, to 96 7/32-96 11/32, to yield 6.89%.
The three-year 5 1/8% note was unchanged, at 99 13/32-99 15/32, to yield 5.32%.
Rates on Treasury bills were lower, with the three-month bill two basis points lower at 3.30%, the six-month bill down one basis point at 3.45%, and the year bill one basis point lower at 3.65%.
In other news, the New York Fed reported the federal funds rate averaged 3.37% for the week ended Wednesday, up from 3.10% the previous week.
Fed Reports Forex Activity
U.S. monetary authorities intervened to support the dollar in two episodes during August, a New York Fed official said yesterday.
William J. McDonough, executive vice president at the Federal Reserve Bank of New York and manager of the Federal Reserve System's open market account, said the Fed bought $1.1 billion by selling German marks in the two episodes. Those were the only U.S. interventions in the period from August through October.
The Fed's foreign exchange desk acts for the Federal Reserve and the U.S. Treasury when it intervenes in the foreign exchange markets.
The first intervention, on Aug. 7 and 11, involved the purchase of $600 million against the German mark and occurred after economic news, including the July jobs data, confirmed weakness in the U.S. economy, McDonough said.
In the second intervention, on Aug. 21 and 24, authorities bought $500 million against the mark. McDonough said this intervention was in response to the mark's strengthening position versus other European currencies.Treasury Market Yields Prev. Prev. Thursday Week Month 3-Month Bill 3.35 N.A. 3.056-Month Bill 3.53 N.A. 3.271-Year Bill 3.78 N.A. 3.482-Year Note 4.77 N.A. 4.363-Year Note 5.32 N.A. 4.825-Year Note 6.19 N.A. 5.917-Year Note 6.56 N.A. 6.4110-Year Note 6.89 N.A. 6.8430-Year Bond 7.55 N.A. 7.68