Treasury securities surged Friday as the latest report on employment supported the view that growth in the labor market and the overall economy remains slow.
The 30-year bond ended up almost 1 1/3 points to yield 5.91%.
The employment report for September, which came in dead on expectations, did not shed any new light on the state of economic fundamentals. However, it did calm fears that the economy was gaining steam. Participants embraced' the numbers as support for the market at current levels and Treasury prices rose across the board.
Retail accounts found reason in the jobs figures to enter the market after sitting on the sidelines for the last two weeks. While the spike in prices mostly resulted from short-covering following the release of the report, retail accounts were reported to be active buyers of intermediate and long-dated Treasuries.
"The report was disappointing and the numbers were weak enough to bring buyers back into the market," said Robert Brusca, chief economist at Nikko Securities Co. "This was the excuse people were looking for to buy Treasuries."
The Labor Department reported that nonfarm payrolls rose 156,000 in September and the civilian unemployment rate was unchanged at 6.7%. The figures were in line with expectations. The August nonfarm payrolls decrease was revised to 41,000 from an initially reported 39,000.
Fixed-income market analysts embraced the figures as evidence that the economy and the labor sector continue to stagger, and the bond market spiked higher in relief Market participants agreed that the figures showed that the economy is expanding, but not quickly enough to create jobs or boost inflation.
Brusca said that in some cases the detail of the report was even weaker than the headlines. For example, he said, state and local governments were a surprisingly large contributor to payroll growth in September, adding about 70,000 jobs.
"Clearly, the consumer sector was weaker than the nonfarm payrolls number suggests," Brusca said.
Another weak development in the figures was the decline in the average work week, which fell 0.3 hours to 34.4, and the unchanged reading of $10.86 on average hourly earnings.
Kenneth T. Mayland, chief economist at Society National Bank in Cleveland, said the flat reading on wages was a positive development for the Treasury market because of its implications on overall price pressures in the economy and consumer spending.
Also supportive of the market was the belief that the weakness in the employment figures is likely to show up in a number of upcoming economic indicators, including industrial production, personal income, and construction and housing activity, Mayland said.
Despite the broad-based weakness of the report, market analysts agreed it is unlikely to have a significant impact on the Federal Reserve's deliberations on interest rate policy.
"I don't expect a change in Fed policy to occur off these figures," said Elias Bikhazi, money market economist at Deutsche Bank.
The market held onto most of its pins throughout Friday's session, underpinned by retail accounts, dealers, and speculators. Also providing support were widespread expectations that next week's inflation reports will show that there are few upward price pressures in the economy.
Wall Street economists polled by The Bond Buyer expect an increase of 0.2% for both the consumer price and producer price indexes. A reading of 0.2% would support the basic message of limited inflation pressure, which is likely to keep the market on a bullish track, analysts said.
The market was buzzing Friday with rumors that the Labor Department's employment report had been leaked. The Chicago Board of Trade's Office of Investigations and Audits said that it had opened an investigation on the circumstances surrounding a spike in bond prices that occurred just prior to the release of the September employment report this morning.
The CBOT's bond market was startled when futures prices surged by 1/2 point just seconds before the release of the monthly employment figures.
Treasury market participants generally believe the spike in the December bond contract was caused by panic buying as a few large buyers stepped up moments before the Labor Department released the figures.
A CBOT spokesman said the office was looking into the price movements in the futures market and said no further comments on the matter would be made until the investigation has been completed.
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 Friday up 2/32 at 100.05-100.06 to yield 3.77%. The 4 3/4% five-year note ended up 10/32 at 100.18-100.20 to yield 4.60%. The 53/4% 10-year note was up 18/32 at 103.23-103.27 to yield 5.24%. And the 6 1/4% 30-year bond was up almost 1 1/3 point at 104.16-104.20 to yield 5.91%.Treasury Market Yields Prev. Prev. Friday Week Month3-Month Bill 2.99 2.96 3.016-Month Bill 3.08 3.09 3.141-Year Bill 3.19 3.32 3.292-Year Note 3.77 3.82 3.773-Year Note 4.03 4.11 4.065-Year Note 4.60 4.71 4.657-Year Note 4.80 4.90 4.8610-Year Note 5.24 5.33 5.2730-Year Bond 5.91 5.98 5.87Source: Cantor, Fitzgerald/Telerate