CREDIT : Jobs Data Stuns Traders; Bond Prices Tumble

The government’s report of stronger-than-expected job growth in November stunned the bond market Friday, sending prices sharply lower and interest rates higher on speculation that the Federal Reserve may tighten credit conditions to slow economic growth.

Bond traders, who were anticipating a rise of about half of the 463,000 new jobs reported, were “shocked by the numbers” and sold bonds on the report, said Maury Harris, economist for the investment firm Paine Webber Inc.

The selloff was described as orderly, however, and the market soon stabilized at the lower levels.

Some analysts said the job growth figure indicated that the economy is expanding so quickly that the Fed will move to tighten credit and possibly boost the rate it charges on loans to financial institutions, to slow the economy down and avoid a resurgence of inflation.

Elliott Platt, fixed-income research director for Donaldson Lufkin & Jenrette Securities, said chances of a half-point increase in the Fed’s discount rate to 7% next week “are fairly high.”

30-Year Bond Drops

But Harris and some other analysts said they did not expect the Fed to raise the discount rate so quickly and pointed to other parts of the same jobs report as evidence that the economy is not overheating.

The Treasury’s closely watched 30-year bond dropped 1 3/8 points, or $13.75 for every $1,000 in face amount. Its yield climbed to 9.16% from 9.02% late Thursday.

The Shearson Lehman daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, dropped 9.26 to 1,129.20, its biggest one-day drop since it fell 9.48 on Nov. 4 after the October employment report also showed unexpected strength.

Short-term interest rates rocketed higher. Yields on one-year Treasury bills, for instance, jumped to 8.94% from 8.63% late Thursday.

The activity was triggered early Friday by the November employment report. But some economists said the market appeared to overlook other evidence contained in the report that suggested another view of the economy.

“It really isn’t as strong as it seems,” said Robert Brusca, chief economist for Nikko Securities International.

Marshall B. Front, vice president at the investment firm Stein Roe & Farnham in Chicago, said the report showed the economy may be moderating.

He said the unemployment rate, for instance, rose one-tenth of a percentage point to 5.4% in November, the average work week edged down 12 minutes and average hourly wages were unchanged. In addition, Front noted, the report revised estimated job growth in October to 238,000 from the 323,000 initially reported.

“I’ll bet they won’t raise the discount rate. There are enough signs of easing in the economy to forestall such an increase,” he said.

In the secondary market for Treasury bonds, prices of short-term governments fell by 1/2 point to 5/8 point, intermediate maturities lost 7/8 point and 20-year issues fell nearly a full point, according to Telerate Inc., a financial information service.

The movement of a point equals a change of $10 in the price of a $1,000 bond.

In corporate trading, industrials were lower. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, fell 1.70 to 293.43.

In the tax-exempt market, prices fell more than 1/2 point, according to the Bond Buyers index of 40 actively traded municipal issues.

Yields on three-month Treasury bills rose to 8.31% as the discount climbed 20 basis points to 8.04%. Yields on six-month bills rose to 8.72% as the discount jumped 25 basis points to 8.25%. With yields on one-year bills rising to 8.94%, the discount on those issues rose 27 basis points to 8.28%.

A basis point is one-hundredth of a percentage point. The yield is the annualized return on an investment in a Treasury bill. The discount is the percentage that bills are selling below the face value, which is paid at maturity.

The federal funds rate, the interest on overnight loans between banks, was quoted at 8.5625%, up from 8.5% late Thursday.

Tables, Page 10