U.S. Treasury Bond Prices Finish Higher

The Associated Press
Friday, September 1, 2006; 4:56 PM

NEW YORK -- U.S. Treasury bond prices ended Friday with small gains in the wake of a heavy dose of economic data. Investors moved to the sidelines ahead of an early market close and a long weekend to observe Labor Day in the United States.

At 3 p.m. EDT, the 10-year Treasury note was up 1/32 from late Thursday. Its yield, which moves in the opposite direction, was virtually unchanged at 4.73 percent.

The 30-year bond was up 2/32. Its yield declined to 4.87 percent from 4.88 percent.

The 2-year note was up 1/32, yielding 4.76 percent, down from 4.78 percent.

Yields on 3-month Treasury bills were 5.00 percent, as the discount fell to 4.87 percent from 4.92 percent.

The U.S. bond market will be closed Monday.

The buoyant end to trading capped a volatile session for the market that offered key data on the economy that helped underscore the case of moderate growth that will likely aid the Federal Reserve to keep monetary policy steady, at least over the near term.

The first stop on the market's journey came with the arrival of the U.S. government's non-farm payrolls data, which showed a rise of 128,000 new jobs for August, in line with the expectations of economists. The unemployment index slipped to 4.7 percent from 4.8 percent in July, amid a small gain in average hourly earnings.

"Job creation was mediocre again in August, providing additional evidence of a slowing economy," said Steve Wood, of forecasting firm Insight Economics. "The sluggishness in payroll employment will likely persuade the (Federal Open Market Committee) to continue to pause at (its) September meeting," he said.

David Ader, bond strategist at RBS Greenwich Capital in Greenwich, Conn., said of the jobs report: "This is exactly the type of report that we find non-inspirational."

That hiring news was followed by the Institute for Supply Management's manufacturing index for August, which came in at 54.5, versus July's reading of 54.7. Economists were looking for a reading of 55.0.

The bond market initially had been wounded by the jobs data, but saw in the ISM data something that gave the greenlight to push prices back close to their starting point. Despite the ample economic news, some of the market's action was technical in nature.

The bond market was already pricing in a decent amount of economic weakness, said Scott Gewirtz, head of Treasury trading at Lehman Brothers in New York, after the release of the somewhat weaker-than-expected jobs report. The numbers "make it much more likely the Fed stays on the sidelines in September," he added.

Meanwhile, economists at Lehman Brothers in New York shifted their call for a Federal Reserve interest rate hike from September to October.


Deborah Lynn Blumberg contributed to this report.

© 2006 The Associated Press