Last Friday's worse-than-expected employment report for September turned Treasuries, which had been under pressure most of the week, around. The unemployment rate soared to 10.2% -- the highest since 1983 -- from 9.8%, when 9.9% was expected.
This was just the medicine Treasuries, which struggled through a week loaded with positive economic reports, needed. The yield on the benchmark 10-year note fell below 3.50%, jumped back up and then headed back down.
Wednesday's Fed post-meeting statement said rates would remain low for an "extended" period, which was good news. But positive comments of economic activity "continuing to pick up" and a stronger housing market worried traders. In addition, three auctions of government debt were announced for this week, which usually initiates selling in Treasuries due to supply worries.
At its September meeting the Fed extended the date for buying MBS to March 2010, and there was hope that it would also expand its purchasing program. But that didn't happen, perhaps indicating a slowing of future purchases.
Positive economic news arrived early last Monday with the October ISM index on manufacturing conditions jumping to 55.7 from 52.6, led by an increase in employment. Analysts were expecting 53.
Pending home sales also rose 6.1% in September sending the index to 110.1 -- the highest it's been since December 2006. The first-time home buyer tax credit, which was extended to April 30, 2010, was a major factor in the increase. Also on the rise was construction spending for September, up 6.1% when a -0.3% was forecast.
Tuesday was quiet, as the markets braced for the Fed. But factory orders in September grew 0.9% and have risen five times in the last six months. In addition, inventories fell 1%, indicating strong demand for U.S.-manufactured goods.
Although Wednesday was all about the Fed, the ISM index on the service sector for October came in lower than the expected 51.7. It edged down to 50.6 from 50.9.
On Thursday Treasuries held their ground after early losses in spite of a 200-plus gain by the Dow. First-time jobless claims for the week ended Oct. 31 fell by 20,000 to 512,000, the lowest since January, and this put selling pressure on bonds. Initial claims have been above 500,000 for 51 straight weeks. Continued claims, those collecting benefits for more than one week, also fell, coming in at 5.75 million.
Productivity in the 3rdquarter rose 9.9% versus a 2ndquarter increase of 6.6%. Although high productivity is good for manufacturers, who get more output per hour, it doesn't do much to help the employment situation.
The employment report, heavily anticipated, was worse than expected. Jobs shed from U.S. payrolls came in at 190,000, which was higher than the 175,000 that analysts expected. And the 10.2% jobless rate is expected to keep rising into next year.
Wholesale inventories, which don't get any respect since they always follow the employment report, fell 1% in September. This turned out to be right on target, and inventory reduction is a good thing.
Mortgage rates edged down again during the week ended Oct. 30, but this time applications rose, at least for those wanting to refinance. Refis jumped 14.5%, but purchases fell 1.8%, according to the Mortgage Bankers Association.
This week is an odd one because not only are there few economic reports, but most of them have little influence on the markets. That leaves Treasuries open to outside influences, which makes it almost impossible to figure which way they'll go.
And to make matters worse, we don't get any news until initial jobless claims for the week ended Nov. 7 are released on Thursday. There is no consensus yet as to which way they'll go, but if claims fall below 500,000, Wall Street will likely rally and Treasuries will probably sell. Employment is the key to economic recovery; weekly declines in the number of people filing is a good sign for the economy, but not for bonds.
Friday ends with a couple of trade reports that have no influence on the markets. However, we'll get the University of Michigan/Reuters' preliminary consumer sentiment index for November, which should rise to 71.8 from 70.6. This could foster selling in bonds.
I hope that you enjoy the rest of your day. If there is ever anything that I can do for you, please let me know.
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