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Markets & Stocks
Bonds back with a vengeance
March 5, 1999: 3:27 p.m. ET

Treasury market rallies to encouraging labor report, but dollar sulks
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NEW YORK (CNNfn) - After a week punctuated by selling and marked by extreme interest rate fears, U.S. bonds coasted to the close Friday, lifted by a rush of mingled enthusiasm and relief that wage inflation remains mild.
     By 3:00 a.m. ET, the benchmark 30-year Treasury bond was up 1-3/32 points in price at 94-21/32, pushing the yield down to 5.62 percent. The gains brought the long bond's long week to a net yield gain of 3 basis points, or a price fall of 22/32.
     Earlier, the long bond had been up as much as two full points, its largest one-day rally since Oct. 5, the height of a safe-haven bid prompted by global stock insecurity.
     Yields fell at all maturities, with 10-year paper trading up 19/32 to yield 5.33 percent and two-year notes gaining 4/32 to yield 5.14 percent.
30-year Treasury prices - week chart

More jobs but flat pay

     Traders and analysts agreed that the morning's payroll report was the primary engine for the day's bond market recovery.
     Although the Labor Department said that the U.S. economy is still growing at an unexpectedly boisterous rate, adding 270,000 jobs in February when economists had only expected figures on the low side of 250,000, Treasury investors rallied to the additional news that wage inflation had slowed to practically zero.
     "Actually there are two pieces of news," said Bruce Steinberg, chief economist at Merrill Lynch. "One is that although the market consensus was only 250,000, the bond market was fearing a much, much stronger report --hence the relief rally that followed the release of the numbers."
     Indeed, the always inflation-wary bond market had steeled itself for a figure as high as 300,000, making the actual data seem soft by comparison.
     The second of Steinberg's "two pieces of news" was of course the wage statistics, which indicate an almost total absence of wage inflation at work in the U.S. economy.
     "Hourly wages only went up one tenth of one percent. In fact, hourly wages are up at the slowest rate in 19 months right now," he said. "That is pretty amazing news considering how tight the labor market is."
     Wage inflation is a key factor watched by Federal Reserve Chairman Alan Greenspan as he determines whether to raise or lower U.S. interest rates. Before the data's release, the threat of higher labor market pressure had spooked bond traders into fearing that Greenspan would raise rates, in turn rendering bonds and other fixed-income securities less attractive.
    
The look ahead

     Furthermore, the news seemed to have finally cracked the bond market's growing sense of gloom, at least temporarily..
     "I would expect the bond is going to do a lot better after this report," said Robert Brusca, chief economist at Nikko Securities. "You look at this headline (and) it worries you, but then you look at the details in this report and you see what is going on. I think the more people look at this report today, the more they are going to like it, the less they are going to fear it, and the better the bond market is going to do."
     In particular, Brusca said that not even the higher-than-expected job growth was a warning sign of real inflationary pressures ahead.
     "I think one thing to notice in this report and to notice looking forward is that even in this very strong 275,000 number, 72,000 jobs came out of the construction sector. This is seasonal," he said.
     "We have had very unusual weather, particularly in the Northeast. You have been able to hire construction workers when normally you wouldn't be able to. They are building houses in the middle of the winter when they normally can not do that here, and you are going to lose these jobs as we get into the more normal weather patterns in the second quarter."
     Next week, the bond market will await the Tuesday release of productivity data, known to be one of Greenspan's especially favored statistics.
Dollar/yen this week
Dollar at rest

     The dollar, meanwhile, fell back on the indications that inflation remains at bay, sliding against other global currencies after keeping the euro near lifetime lows and climbing more than 4 yen, or 3.5 percent, earlier in the week.
     By late afternoon, the greenback had slipped back to 122.75 yen from its previous close of 123.47, well off three-month highs touched Thursday.
     However, profit-taking and an export-driven 5-percent rally in Tokyo stocks knocked the luster off dollar/yen gains, while the euro bounced up to $1.0826, well off its Thursday close of $1.08.
     Traders said currency players had already priced expectations of a continued strong labor market into the dollar's week-long ascent, and so the greenback was now giving up some of that advance. Back to top
     -- by staff writer Robert Scott Martin

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.