Bond prices took a hard fall Friday after new government figures on jobs gave more evidence that the economy is much stronger than previously thought, despite the October stock market crash.
Analysts said traders were surprised by a Labor Department report that the nation's civilian unemployment rate dropped to 5.8% in December, its lowest level since July, 1979.
The report also said about 235,000 Americans found work in December, raising total employment to 115.5 million and dropping the jobless rate 0.1 percentage point from November.
Bond prices reacted to the news with a heavy slide that only began to turn around slightly near the end of the day.
At the close, the Treasury's key 30-year bond was down 1 7/8 point, or about $18.75 for every $1,000 in face value. Its yield, which moves inversely to its price, rose to 9.13% from 8.94% Thursday.
The "surprisingly strong job figures, coming on top of others--fairly strong auto sales in December, stronger-than-expected retail sales--tend to suggest the economy is starting 1988 on a stronger note than most forecasters were anticipating," said David Jones, an economist at the Aubrey G. Lanston & Co. securities firm.
A stronger-than-expected economy would be bad for bonds because it would reduce the likelihood that the Fed might push down interest rates in the near future--and that, in fact, interest rates might be headed higher.
Gordon B. Pye, senior vice president at Irving Trust Co., also blamed the bond market's decline on the unemployment report.
"It put to rest any notion about a recession in the near term," he said.
In the secondary market for Treasury bonds, prices of short-term government issues fell 9/32 point; intermediate maturities fell 7/8 point, and long-term issues were down 2 5/32 point, according to Telerate Inc.
Yields Are Up
The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.
The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 0.92 to 109.61. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, fell 4.87 to 1,151.42.
Yields on three-month Treasury bills were up 9 basis points to 6.04%. Six-month bills rose 10 basis points to 6.76%, and one-year bills were up 12 basis points at 7.18%. A basis point is one-hundredth of a percentage point.
The federal funds rate, the interest on overnight loans between banks, traded at 6.75%, down from 6.875% Thursday.
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