Bonds slip as data signal recovery in less jeopardy

By Ellen Freilich

NEW YORK (BestGrowthStock) – U.S. Treasuries prices fell for a third straight day on Friday as data on the U.S. labor market alleviated fears the world’s largest economy may be headed for a double-dip recession.

The government reported that the U.S. private sector added 67,000 jobs to payrolls in August, exceeding forecasts.

The Labor Department also said that overall U.S. employment fell for a third straight month, but the drop was far less than the market expected.

The data weakened investors’ demand for safe-haven U.S. government debt and raised the possibility that the bond market rally might stall out, at least temporarily.

“The rally may not be over, but further progress is limited for a while,” said Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi in New York.

“Three percent is the target,” he said, referring to the climbing yield on benchmark 10-year U.S. Treasuries, now at 2.72 percent, up from 2.625 percent on Thursday. Bond yields rise as their prices decline.

The Labor data sent bond prices lower and stocks higher.

“We’ve seen some pretty hefty asset allocation trades out of bonds and into stocks,” said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.

Overall non-farm payrolls fell by 54,000. But this was largely because temporary federal census jobs decreased by 114,000, so private employment was seen as a better measure of labor market health.

Bonds erased some losses, however, when an index of activity in the nation’s non-manufacturing sector came in weaker than expected.

The 30-year bond, down two points before the Institute for Supply Management data was released, subsequently fell 1-08/32. Its yield rose to 3.79 percent, versus 3.72 percent on Thursday.

The employment component of the ISM index came in below 50, a reading that points to shrinking hiring.

“(The ISM index was) a weaker number, so Treasuries pared some of the day’s losses,” said Sean Simko, fixed-income portfolio manager with Investment Management Company SEI in Oaks, Pennsylvania.

He said the below-50 reading on the employment component showed that companies “continue to be wary of hiring.”

The Treasury market also faces supply next week with the Treasury auctioning three-, 10- and 30-year securities.

That looming supply provided an “extra incentive to cheapen up the Treasury market a little,” Rupert said, noting that before a long holiday weekend, “huge” market moves might not be sustained.

Bond prices have steadily marched higher in recent months, pushing yields to historic lows as investors have sought lower-risk assets under a barrage of data pointing to a faltering economic recovery. The ultimate fear has been that the United States was heading for a Japan-style decade of deflation.

But bond prices fell on Wednesday after manufacturing data from China and the United States raised some hopes that the economic recovery may not be in as much jeopardy as some other recent economic data had suggested.

Data showing some signs of life in the housing market helped push prices lower on Thursday and that trend continued on Friday when August U.S. employment data offered a less grim picture than forecast.

(Additional reporting by John Parry and Burton Frierson; Editing by Dan Grebler)

Bonds slip as data signal recovery in less jeopardy