Treasury notes fall as labor costs rise - Bonds
[author:zyk06 Public time:Nov 3, 2006] |
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Treasury notes sank Thursday, snapping a seven-session rally, as a report showed that labor costs rose last quarter by more than forecast, while productivity stalled.
The yield on the benchmark 10-year note climbed from a four-week low on speculation that government data Friday would show faster job creation, reducing prospects that the Federal Reserve would cut interest rates early next year. Yields sank Wednesday on signs of a manufacturing slowdown.
The increase in labor costs is "going to get the Fed's attention," said Kevin Flanagan, a fixed-income strategist for Morgan Stanley's individual investor clients. Part of the market was "getting ahead of itself and pricing in an easing. This may squash that for the time being," Flanagan said.
The yield on the benchmark 10-year note rose 3.5 basis points to 4.596 percent in New York. The price of the issue, a 4 7/8 percent note due in August 2016, fell 1/4 to 102 1/8.
The 10-year notes' seven-session rally was its longest since 2004.
Productivity, or what one worker produces in an hour, was flat last quarter, after rising 1.2 percent from April to June, government statistics showed. Slower productivity growth may encourage companies to protect profits by raising prices. Labor costs increased at a 3.8 percent rate in the third quarter after a 5.4 percent clip the prior period. The median forecast in a Bloomberg survey was for a 3.4 percent jump.
The Labor Department is expected to say Friday that employers added 123,000 workers last month, after the economy created 51,000 jobs in September, according to a Bloomberg survey.
Meanwhile, European government bonds slid by the most in two weeks after the European Central Bank president, Jean-Claude Trichet, said that the bank needed to maintain "strong vigilance" on inflation in the euro region.
Two-year notes, more sensitive to changes in rates than longer-dated debt, have fallen for the past four months on expectations that the ECB will keep lifting borrowing costs. Trichet on Thursday said that higher interest rates were warranted if the main growth scenario is confirmed, indicating that rates would rise in 2007.
The 10-year bund yielded 3.74 percent.
The price of the 3.5 percent security due September 2008 dropped 0.27 to 102.05.
The ECB kept its refinancing rate at 3.25 percent Thursday as was forecast by economists in a Bloomberg survey.
"Trichet's being quite hawkish, stressing growth remains strong and inflation will remain above the 2 percent target for the foreseeable future," said David Keeble of Calyon in London.
Author: Daniel Kruger
Source: http://www.iht.com/
Printed From:http://www.free-press-release.com/news/200611/1162589390.html
Source:Free Press Release
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