CREDIT : Bond Prices Surge After U.S. Report

Bond prices surged Friday, boosted by a government report on unemployment that investors interpreted as another signal the economy is slowing down.

The Treasury’s closely watched 30-year issue jumped about 1 21/32 points, or about $16.25 for every $1,000 in face value. Its yield, which moves inversely to its price, tumbled to 8.29% from 8.44% late Thursday.

Yields on the 30-year bond have not fallen this low since mid-April of last year.

Bond prices jumped a point or more at the opening on a Labor Department report that the U.S. jobless rate held steady at a decade-low 5.8% last month. Non-farm payroll growth, which showed a net increase of only 105,000 new jobs in January, was at its slowest pace in 19 months.

Most economists had anticipated that non-farm payroll, the number most watched in the credit markets, would rise by about 200,000 jobs.

Instead, the numbers “indicate there’s quite a bit of weakness in the economy,” said Nancy Vanden Houten, a money market economist at Merrill Lynch & Co.

As a result, many bond investors expect the Federal Reserve to encourage lower interest rates to stimulate spending and keep the economy rolling.

The sluggish employment growth immediately overshadowed the lackluster response to the Treasury’s $27-billion auction of bonds and notes, which occurred earlier in the week, according to John Lonski, an economist with Moody’s Investor Service.

Bond prices sustained a strong rally until late in the day, when there was some profit taking, and then pushed ahead again.

“I suppose that in looking at the (employment) numbers again more closely, some people may have felt the bond market rally had gone a little too far too quickly,” said Marshall B. Front, an executive vice president at Stein Roe & Farnham, Inc. in Chicago.

Prices of short-term government issues rose 9/32 point to 11/32 point; intermediate issues advanced 15/32 point to 1 3/32 points, and 20-year issues jumped 1 9/32 points, according to Telerate Inc.

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, was up 0.84 at 114.01. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, rose 8.09 to 1,192.43.

Among tax-exempt municipal bonds, general obligations rose 1 point while revenue bonds were up 1/2 point to 3/4 point. Trading was active, according to Merrill Lynch.

Yields on three-month Treasury bills, meanwhile, declined 2 basis points to 5.64%. Six-month bills fell 12 basis points to 5.94% and one-year bills were down 13 basis points, at 6.11%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, was quoted at 6.50%, down from 6.675% Thursday.