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		Home Page Mortgage News You Can Use Treasurys Close Sharply Higher on Weak Job Growth Friday February 6, 5:06 pm ET By Michael Mackenzie NEW YORK -- U.S. Treasurys banked solid gains Friday in the wake of yet another disappointing employment report. Although 112,000 jobs were created in January, the fastest monthly pace in three years, the figure was well below the consensus forecast of 160,000 hirings. Rick Klingman, head of government trading at ABN Amro in New York said, " Treasurys were priced for a much stronger number" and late in the session "were still trading well." While the unemployment rate dropped 0.1 percentage point to 5.6%, Treasury traders and investors were more focused on the payroll component of the employment report, particularly the net change. The lackluster pace of job growth -- following the revised gain of 16,000 jobs in December -- came as a "little bit of a cold shower for growth optimists," said Ralph Axel, fixed-income strategist at HSBC in New York. He said many traders had expected payroll growth to exceed 200,000, particularly in the wake of recent bullish remarks from Fed Governor Ben Bernanke. He said Thursday that the labor market would improve, which market participants believed meant the January report would post strong growth. Ahead of the number, the 10-year note yield was trading at 4.19%. It immediately fell sharply to around 4.08%, a level it was loitering above in late-afternoon trading. Mr. Klingman said the lack of any pullback in Treasurys was frustrating for those accounts that sold the initial payroll-inspired rally. He said some investors were looking for a pullback in the bond market ahead of the Group of Seven leading industrialized nations' meeting this weekend and next week's Treasury refunding and Federal Reserve Chairman Alan Greenspan's testimony before Congress. Meanwhile, the data pushed the timing of a future interest-rate hike out to August from June. The June three-month eurodollar future settled around 98.70, implying a rate of 1.3%, and in turn a stable federal-funds rate of 1%. The September eurodollar future settled at 98.44, implying a three-month rate of 1.56% by late summer and a fed-funds rate of 1.25%. "Despite other evidence to the contrary, the economy is having difficulty creating jobs right now," said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Conn. He now puts "the first Fed tightening at the August meeting now rather than June." He also cautioned, "If we do not see payroll growth start to pick up toward 200,000 per month by the spring, then the odds will shift toward no move all year." A Dow Jones Newswires/CNBC survey of 21 of the 23 primary dealers conducted Friday after the release of the January nonfarm payrolls data found 10 seeing a rate hike coming somewhere between May and August and three predicting it to come during the closing months of the year. The other eight think the tightening won't come until sometime next year. At 3:45 p.m. EST, the 10-year Treasury note stood at 101 8/32, up 21/32 to yield 4.09%. The 30-year bond was up 30/32 to 106 20/32, yielding 4.93%. The five-year note was up 14/32 to 100 23/32, yielding 3.09%, while the three- year note was up 8/32 to 101 7/32, yielding 2.17%. The two-year note was up 5/32 to 100 7/32 to yield 1.76%. In Chicago, the 30-year bond for March delivery settled up 1 and 3/32 at 112 5/32, and the 10-year contract closed 25/32 higher at 114 0+/32. With the employment report now behind, the bond market attention turns to next week's big events. Thomas Girard, senior portfolio manager at Weiss, Peck & Greer in New York, who manages approximately $6.5 billion in fixed-income assets, said, "We've now moved passed this number and there's a sigh of relief. But it wasn't the type of number to push you one way or the other out of this ever-narrowing range." The yield on the 10-year note hit resistance around 4.08%, and Mr. Girard expects that level to hold until the market moves past next week's event-riddled calendar, which includes the $56 billion quarterly refunding auctions and Mr. Greenspan's congressional testimony. While most traders expect Mr. Greenspan to highlight the economy's strength when he speaks Wednesday, the effect of the January jobs report promises to keep demand alive for government securities since the data show red-hot economic growth hasn't jump-started the labor-market recovery. In light of the employment report, "it will be interesting to see if Greenspan is as optimistic about the economy as Bernanke is," said Bill Chepolis, managing director at Deutsche Asset Management in New York, with $120 billion of fixed- income assets. He added the payroll report "reinforces the range trade in Treasurys" and bolsters the continuation of the carry trade as the timing of future rate hikes is moved later in the year. "Mortgages offer decent carry," said Mr. Chepolis. He went on to say that with the 10-year note yielding under 4.1%, "the market will have to cheapen up in order to absorb the refunding."   Back to Original Article: Mortgage News You Can Use   Continue with: Job Growth in January Disappoints US TREASURY OUTLOOK-Greenspan testimony, Treasury refunding Stocks Could Slip as Earnings Taper Off Time to Be Choosy as Rally Stalls EARLY STAGES OF RECOVERY
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