clarinews@clarinet.com (BRENDAN MURPHY, UPI Business Writer) (02/03/90)
NEW YORK (UPI) -- An incipient bond rally fizzled Friday after the release of U.S. employment data showing stronger job growth than expected, which left the economic picture bright enough to quell any lingering hope the Federal Reserve Board would alter its steady-for-now credit policy. What is good for the economy at large is bad for the bond market, as a rule, so investors in Treasury issues became gloomy. ``Everyone expected a good (i.e. bad) number today, you got a bad number and it was a sort of double whammy,'' said Jay Goldinger, chief market strategist for Capital Insight Inc. in Beverly Hills, Calif. He was referring to growth of 275,000 jobs in the nonfarm payroll in January, when many analysts had been expecting much softer employment expansion of just 150,000 to 200,000. The only bright spot in the report, bond-wise, was a loss of 110,000 jobs in the manufacturing sector. But the market had had overly high expectations of an economic deterioration that might spark a bond rally, Goldinger said. Disapointed by the number which emerged, investors started fretting about possible oversupply resulting from next week's $30 billion U.S. Treasury refunding. ``The only way there's going to be better interest (in the Treasury auctions coming up next week) is if they mark the prices down to levels where people can't resist,'' Goldinger contended. Despite a mediocre bond market outlook, the early part of the week saw upward movements that the late slide failed to wipe out. This was a marked improvement compared with the disastrous week before, when various shocks drove the benchmark U.S. long bond down 2 1/2 points. Friday the benchmark 30-year bond, the 8 1/8 of 2019, closed at 95 28-32 to yield 8.51 percent, compared with 95 23-32 and 8.52 percent, a modest gain of about 1/8 point or $1.25 for each $1,000 face value. Salomon Brothers' newsletter ``Comments on Credit'' stressed that the lack of a clear economic trend has frustrated the bond market. It cited ``tentative stability'' in a continuing ``unsettled'' market. ``Measured week to week, yields on long Treasuries were nearly unchanged,'' it said. ``However, today's unemployment news for January provided no watershed for the direction of market perceptions and the slide ... resumed.'' The publication said January's rise in payroll employment ``continues to fend off expectations of a recession.'' Yet ``substantial uncertainty'' on economic strength and inflation will surround Treasury auctions. But ``Credit Market Comment,'' issued by Smith Barney, said the auctions don't pose a big problem. It said technical factors in the Japanese bond market and not-entirely-discounted rumors saying Soviet leader Mikhail Gorbachev might resign his Communist Party leadership have bolstered interest. Ten-year Treasury notes closed at 95 29-32 to yield 8.50 percent, against 96 3-32 and 8.47 percent last week. Five-year Treasury notes closed at 97 9-32 to yield 8.41 percent, against 97 16-32 and 8.35 percent. Two-year Treasury notes closed at 98 1-32 to yield 8.26 percent compared with 8.17 percent at the end of last week. Six-month Treasury bills ended at a discount rate of 7.63 to yield 8.04 percent against 8.0 percent a week before. Three-month T-bills finished at a discount rate of 7.69 to yield 7.94 percent against 7.99 percent. Shearson Lehman Hutton Inc.'s index of long-term Treasury bonds rose 2.26 points or a scant 0.2 percent to close at 1,294.68. The Federal funds rate remained at 8 3/16 percent, just over the current perceived Federal Reserve target rate of 8 1/4 percent. The Fed funds rate, what banks charge each other for overnight loans, underlies most other rates.