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Markets & Stocks > Bonds & Rates
Bonds retreat on payroll news
Prices slide as Fed expected to raise rates after solid jobs report; dollar jumps.
September 3, 2004: 4:08 PM EDT

NEW YORK (CNN/Money) - Bonds slid Friday as a strong employment report indicated the economy was growing at a healthy pace, paving the way for the Federal Reserve to continue its plan of measured rate hikes.

The dollar rose against the euro and yen.

The benchmark 10-year note sank 17/32 of a point to 99-23/32, yielding 4.29 percent, up from 4.21 late Thursday.

The 30-year bond tumbled 22/32 of a point to 104-22/32 to yield 5.05 percent, up from 5 percent late Thursday. Bond prices and yields move in opposite directions.

The two-year note dropped 8/32 to 99-19/32 to yield 2.59 percent, and the five-year note lost 15/32 to yield 3.50 percent.

The Labor Department announced that 144,000 new jobs were created in August, just below analysts' estimates of 150,000, and a giant jump from July's disappointing 38,000.

The unemployment rate ticked down to 5.4 from 5.5 percent in July, lower than analysts' average forecast of 5.5 percent.

While the 144,000 increase in August payrolls did little to settle the debate over future prospects for economic growth, it signaled at the very least that the U.S. central bank would continue its monetary tightening campaign.

"It assures that the Fed continues to not buck what was built into the futures contract, and will move by 25 basis points in September," said Peter Kretzmer, senior economist at Banc of America.

A Reuters survey of the top economists on Wall Street taken after the payrolls report found all 22 now expect another tightening at the Fed's Sept. 21 policy meeting.

The August employment report comes on the heels of two months of weak job growth.

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Higher rates pressure bonds because they erode the fixed-value return on Treasurys, while a rate hike would support the dollar by making U.S. equities attractive to overseas investors.

The market found only fleeting support in a sharper-than-expected slowdown in the U.S. services sector. The Institute for Supply Management measure of non-manufacturing business activity dropped to 58.2 in August from 64.8 in July, some way below market forecasts of a dip to 62.8.

In currency trading, the dollar gained on the euro and the yen, with the euro buying $1.2065, down from $1.2165 late Thursday. The dollar bought ¥110.47, up from ¥109.49.  Top of page

-- from staff and wire reports

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