BOND REPORT: Treasurys Head For Weekly Gain After Poor Jobs Report
09 Januar 2009 - 10:25PM
Dow Jones News
By Deborah Levine
Treasury prices headed higher Friday, led by gains in short-term
debt, after the Labor Department said the U.S. economy lost 524,000
jobs in December while the unemployment rate rose to the highest
since 1993.
Declines in U.S. stocks also spurred safe-haven buying, leading
investors toward government debt.
"We knew the economy was bad and I don't think it's going to get
better soon," said William Chepolis, who helps manage $9 billion in
fixed-income assets at DWS Investments. "People are buying
Treasurys at these yields because it's a quality thing."
Yields on 10-year notes (UST10Y), which move in the opposite
direction of bond prices, fell 5 basis points to 2.40%.
Two-year yields (UST2YR) fell 8 basis points to 0.75%. A basis
point is 0.01%.
The unemployment rate rose to 7.2%, or 0.1% higher than the
median estimate of analysts polled by MarketWatch. Economists
predicted job losses would reach 535,000, though several traders
said the market was girding for losses closer to 600,000.
However, the release included revisions to the previous two
monthly reports, showing more losses than previously stated. It
also said the number of hours worked declined and part-time
employment rose.
"While the market may have been braced for a weaker headline
print, there is no way it can be construed as a
better-than-expected report," David Ader, U.S. government bond
strategist at RBS Greenwich Capital, wrote in an email.
Notwithstanding the day's rally, the bad jobs report could
ultimately pressure Treasurys because it may increase expectations
for the amount of stimulus spending lawmakers propose. Analysts
already expect the Treasury to issue more than $1 trillion in debt
in the fiscal year that began in October.
"Coming in the midst of the debate about the appropriate size of
fiscal stimulus in 2009, this report adds to the pressure to upsize
the package, and thus the supply of Treasurys," said economists at
RDQ Economics.
Ten-year yields are little changed on the week even as the
government auctioned $54 billion in notes. Yields have increased in
the past three weeks.
Two-year yields have fallen from 0.88% last Friday, as economic
data has been poor and kept some investors in the relative safety
of short-term Treasurys. The yield had the biggest five-day drop
since the week ended Dec. 12.
Mortgage debt
Longer-dated maturities have also been under pressure as
investors follow the Federal Reserve in buying mortgage-backed
securities.
The central bank said late Thursday that it bought $10.2 billion
in assets from Fannie Mae (FNM), Freddie Mac (FRE) and other
housing entities earlier this week, the first step in a program
designed to lower mortgage rates and stabilize the housing
market.
Separately, the Fed said foreign official and private investors
have increased their holdings of so-called agency debt in the
latest week, the first increase in 14 weeks.
Agency debt held by the Fed in custody for foreign investors
increased by $700 million, according to data compiled by the Fed
and released late Thursday.
That's the first increase, and followed last week's small
decrease, since early October, when custody holdings went into
freefall, said Lou Crandall, chief economist at Wrightson ICAP, in
a research note.
"It remains to be seen whether foreign official holdings have
actually stabilized, or whether this is just a brief lull in the
long-term liquidation that began last summer," he said.
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