Bond trading Friday could be ‘spastic’ after payrolls
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices rose on Thursday, pushing yields down to their lowest levels in a week, as growing worries about Spain’s debt problems and Europe’s economic outlook revived interest in the relative safety of U.S. government debt.
Yields on 10-year notes 10_YEAR -1.35% , which move inversely to prices, fell 3 basis points to 2.20%, after briefly dipping to their lowest level in a week.
A basis point is one one-hundredth of a percentage point.
Thirty-year bond yields 30_YEAR -0.71% declined 2 basis points to 3.34%.
Yields on 5-year notes 5_YEAR -2.21% fell 2 basis points to 1.02%. They fell as low at 0.97%, breaking the 1% level analysts have been watching.
Italian and Spanish government bond yields continued to spike, with Spain’s 10-year yields ES:10YR_ESP +0.74% hitting their highest level since the European Central Bank’s first three-year long-term refinancing operations in December.
Traders’ attention is quickly turning to the Labor Department’s monthly nonfarm payrolls report coming out Friday, which economists surveyed by MarketWatch project will show a gain of 205,000 jobs last month.
“It will take strong payrolls to offset the drag of Europe,” said Richard Gilhooly, U.S. director of interest-rate strategy at TD Securities. “By this we mean 250,000 [jobs] and a drop in the unemployment rate to show continued momentum and not just status quo of 200,000.”
Analysts noted that several overseas markets are closed on Friday for the Good Friday holiday, and Monday in Europe and the U.K.
U.S. stocks are among those closed and U.S. bonds will be open for just a few hours. The lack of trading volume could increase volatility and overdramatize any market reaction to the data.
“With Europe shut tomorrow and Monday, dealing conditions could get very dicey, illiquid and spastic in the U.S. market,” strategists at RBS Securities said. “Indeed, even if the key nonfarm payrolls report comes in much stronger than expected tomorrow, will U.S. investors really want to take home bond shorts over the weekend and into Tuesday morning? I think not. That tells me the skew of bond price risks over tomorrow’s release is now decidedly more bullish, all things equal.”
Treasury yields briefly dipped, pushing 10-year yields to 2.14% after a report showed U.S. initial jobless claims slipped to 357,000 in the latest week. Read about jobless claims.
Potentially capping gains, traders are positioning for next week’s trio of Treasury auctions, which begin on Tuesday.
The U.S. said Thursday it will auction $32 billion in 3-year notes 3_YEAR -0.39% , followed by $21 billion in 10-year debt and $13 billion in 30-year bonds.
Traders typically sell holdings of current securities to buy the newest, most liquid of each maturity being auctioned. That also pushes down prices at the auction.
Ten-year yields are down slightly from 2.22% at the end of last week. If they end lower Friday, it would be the third straight weekly decline in yields.
Five-year yields are also on pace for a third week lower, coming from 1.04% on Friday.
Thirty-year yields have slipped from 3.34% last Friday.
