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Bonds soar on jobs data
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November 5, 1999: 9:20 a.m. ET
Treasury yields fall on report suggesting low inflation; dollar rises
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NEW YORK (CNNfn) - Treasury bonds surged more than a point Friday after a key government report showed that Americans' wages rose marginally last month, suggesting inflation remains subdued enough to keep the Federal Reserve from hiking interest rates later this month.
In the week's most closely watched economic indicator, the Labor Department said average hourly earnings rose a lower-than-expected 0.1 percent in October. The unemployment rate dropped to 4.1 percent from 4.2 percent, while 310,000 new non-farm jobs were added during the month.
Of all the figures, the inflation-sensitive bond market zeroed in on the limited wage gains that suggest inflation, which erodes a bond's value, remains contained.
"That's a great number that basically calms a lot of the fears out there," Anthony Chan, chief economist at Banc One Investment Advisors, said of the 0.1 percent wage gains.
The market agreed. Just before 9:10 a.m. ET, the price of the benchmark 30-year Treasury bond catapulted 1-7/32 to 101-16/32. Its yield, which moves inversely to the price plunged to 6.01 percent, from 6.10 percent Thursday
The jobs figures -- the last employment data considered by the Federal Reserve when it meets Nov. 16 to set interest rate policy -- comes as a series of other reports have suggested a slowing economy.
Bonds have gained for five of the last six sessions as a series of data including housing starts, factory orders and auto sales have ebbed.
Even before Friday's jobs report, analysts had said this apparent economic slowdown may be enough to dissuade the Fed from hiking its main lending rate at its next meeting Nov. 16.
Friday's data is likely to further support that view.
The Fed last summer twice raised its main lending rate to cool the economy and preempt inflation.
Dollar
The dollar, already stronger against the yen overnight, extended its gains following the jobs report.
Just before 9:10 a.m. ET, the dollar rose to 105.81 yen from 104.83 Thursday, a 0.93 percent rise in the dollar's value.
The U.S. currency's earlier gains came after Japan's ministry of finance said the Bank of Japans will buy bonds from the Ministry's trust fund.
In an e-mail to clients Friday, Donaldson Lufkin & Jenrette said analysts believe this move will increase the money supply, weakening the yen.
Still, DLJ called the dollar gains limited as long as speculation continues on the size of Japan's economic stimulus package.
The dollar, weaker against the euro overnight, narrowed its losses after the release of the jobs data. It cost $1.0386 to buy one euro from $1.0373 Thursday, a 0.13 percent fall in the dollar's value.
In two Reuters polls Thursday, analysts saw the euro rising in the months ahead with the yen trading little changed against the major currencies.
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