The wait for the August employment report paralyzed the Treasury market yesterday, and prices ended little changed even though some of the economic news was favorable for bonds.
Traders said the weaker-than-expected late-august car sales figures and the firmer dollar were not important enough to draw the market's focus away from today's jobs data.
Late yesterday, the 30-year bond was up 1/2 point and yielded 7.35%. and note prices were unchanged to slightly higher.
"Basically nobody's doing anything," the head of a trading desk said.
The market is expecting an employment report that shows the economy continued to grow at a slow rate last month. That kind of report would probably not prompt a Fed easing and might not have much impact on the Treasury market either, since it is already accounted for in prices, traders said yesterday.
The desk head predicted the market would "tread water" if the report matches the consensus forecast.
Economists surveyed by The Bond Buyer on average expect a 175,000 increase in August payrolls, but say about 100,000 of the new positions will be temporary summer jobs for teenagers funded by the federal government, leaving a gain of 75,000 permanent jobs.
In July, 198,000 jobs were added to nonfarm payrolls, but 75.000 of them were summer youth jobs. resulting in a gain of 123,000 jobs.
Most economists expect the unemployment rate to decline slightly, to 7.6% or 7.5%, from the 7.7% reading in July.
Analysts said that a 75,000 increase in permanent jobs in August, excluding the summer jobs for teenagers, would not reflect much growth in the economy.
But they expect the Federal Reserve to keep monetary policy unchanged unless the number of new jobs, excluding the summer jobs, actually declines.
"The Fed has to worry about the impact on the dollar of any further easing, and it also has to consider that a marginal decrease in the funds rate would only have a marginal effect on the economy," said Charles Lieberman, a managing director at Chemical Securities Inc.
Jerry Gluck, an economist at Mitsubishi Bank, agreed that the weakness in the dollar was a problem, and he said that in coming weeks, political considerations would also come into play.
Once we get beyond mid-September, it will be politically difficult for the Fed to ease," because policymakers would worry any easing would be seen as a concession ahead of the presidential election, Mr. Gluck said.
In fact, the dollar improved sharply yesterday, although the Treasury market ignored its move.
The dollar rally began after the British Treasury announced it was borrowing the equivalent of 10 billion of European Currency units in foreign currencies. The dollar also benefited from a Japanese newswire report that the members of the Group of Seven nations had agreed to keep a lid on the mark.
Late yesterday, the dollar was quoted at 1.4150 German marks, up from 1.3942 late Wednesday.
The Treasury market also ignored the unexpected weakness in late-august car sales.
Car sales during the last I 0 days of August came in at a 5.7 million annual rate, down from 6 million a year ago and below the 6.3 million pace that economists expected.
Tom Webb, chief economist for the National Automobile Dealers Association, put the blame on the soft economy, and he said the key to improved car sales was "additional jobs and bigger paychecks."
Late in the afternoon, the Treasury market improved a little when the Fed reported declines in all three measures of the money stok.
A spokesman for the Federal Reserve Bank of New York reported at the bank's weekly press briefing that: The nation's MI money sup. ply fell $3.2 billion, to $972.1 billion in the week ended Aug. 24; the broader M2 aggregate drapped $3.7 billion. to $3.5 trillion: and M3 declined $4.2 billion. to $4.2 trillion, in the same period.
The bond market had a difficult time assessing yesterday's weekly update on new fillings for unemployment benefits. Initial claims rose less than expected, but analysts said a new government program had biased the number lower.
The Labor Department said 386,000 people filed initial claims for state unemployment benefits in the week ended Aug. 22, up 3,000 from the previous week. That compares with the 8,000 increase expected by the bond market.
But economists said a new program that allows some workers to file immediately for federal emergency unemployment compensation, rather than state benefits, had to be taken into account.
The government said 8,240 people filed for the federal program rather than state benefits. Anthony Chan, senior economist' at Barclays de Zoete Wedd Securities, said some of those 8,240 filings should be added back into the initial claims total, although he cautioned that the number is not seasonally adjusted.
Once the claims number is adjusted to take into account the newly unemployed workers who filed for federal benefits, it came in near Street expectations and showed "the labor market is still not showing any major signs of life, but also [is] showing no deterioration," Mr. Chan said.
Mr. Chan pointed out that yesterday's claims may represent a nearterm low, since filings are expected to move higher in coming weeks as the General Motors strike and Hurricane Andrew add workers to the benefits rolls.
The December bond futures contract closed 3/32 higher at 104 26/32.
In the cash market, the 7 1/4% 30-year bond was 6/32 higher, at 98 20/32-98 24/32, to yield 7.35%.
The 6 3/8% 10-year note rose 1/32, to 98 27/32-98 31/32, to yield 6.51 %.
The three-year 4 5/8% note was up, 2/32, at 100 6/32-100 8/32, to yield 4.53%.
Rates on Treasury bills were lower, with the three-month bill down two basts points at 3.13%, the six-month bill off two basts points at 3.20%, and the year bill one basis point lower at 3.29%.
In other news, the New York Fed reported the federal funds rate averaged 3.33% for the week ended
Wednesday. up from 3.27% the previous week.
Treasury Market Yields
Thursday Week Month
3-Month Bill 3.13 3.20 3.20
6-Month Bill 3.20 3.30 3.32
1-Year Bill 3.29 3.44 3.51
2-Year Note 4.06 4.18 4.26
3-Year Note 4.53 4.68 4.69
5-Year Note 5.47 5.60 5.66
7-Year Note 6.01 6.13 6.15
10-Year Note 6.51 6.60 6.62
30-Year Bond 7.35 7.39 7.44
Source : Cantor, Fitzgerald/Telerate