NEW YORK (CNNfn) - Treasury bonds soared nearly a point Friday, pushing yields to their lowest levels of the week, after a government report showing subdued growth in Americans’ wages eased fears of rising inflation.
The euro, meanwhile, dipped below the symbolic $1 mark for the second straight session, hitting a new intra-day lifetime low, before finishing higher.
Bonds catapulted after the Labor Department said average hourly wages, a closely watched harbinger of inflation pressure, rose just 2 cents to $13.41 an hour in November, well below expectations.
"I think that the important fact is that that average hourly wages did not move sharply higher,” said John Lonski, senior economist at Moody’s Investors Service.
That was clearly the important fact for the inflation- sensitive Treasury market, where the price of the benchmark 30-year bond rose 27/32 to 98-7/32. Its yield, which moves inversely to the price, dropped to 6.25 percent from 6.32 percent Thursday.
But while wages gains stalled, the report showed labor markets as tight as they’ve been in 29 years, suggesting employers eventually will bid up wages to retain workers, increasing the likelihood of rising inflation.
"The tight labor market remains a major restraint
on bonds,” Moody’s Lonski said. "By no means does (the jobs report) rule out a rate hike.”
Marilyn Schaja, analyst at Donaldson Lufkin & Jenrette, expressed a similar concern.
”The firmness in the labor market will, nevertheless, continue to keep the Fed primed to raise interest rates during the first quarter of next year,” Schaja said.
While the Fed tightened credit three times this year, bringing its main lending rate to 5.50 percent, those increases appear to have had little effect on economic growth.
As such, many analysts expect the Fed to raise rates again when it meets in February, possibly by half a percentage point.
"If the holiday season does indeed finish strong and if equities continue their sharp advance, a 50 basis point rate hike is possible at the
February FOMC meeting, with 25 basis points all but assured,” said Tony Crescenzi, bond strategist at Miller Tabak & Co.
Separately Friday, the Commerce Department said new orders at U.S. factories declined 0.2 percent in October, less than the 0.6 percent drop expected by economists and above September’s revised 1 percent decline.
Dollar mixed
One day after falling below the symbolic $1 mark, the battered euro did it again. The fledgling single currency, just 11 months old and 15 percent off its high, fell to an intra-day and lifetime low of 99.93 cents, but ending the session higher at $1.0016. Still, analysts called the euro’s move below parity with the dollar more psychological than fundamental in significance
(For a closer look at the euro’s recent slide, click here.)
Economists polled by Reuters said the euro is in for a rough ride in the next few weeks but should gradually pull away from the danger zone of dollar parity in 2000.
The dollar, meanwhile, fell slightly against the yen, dipping to 102.65 from 102.71 Thursday. But analysts see the yen, which rose to a four-year high against the dollar earlier this week, as retreating in the months ahead. Currency analysts surveyed by Reuters predict the seemingly unstoppable yen will cede some terrain against the dollar over the next 12 months as Japan's economic recovery disappoints. 
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