Strong Jobs Report Sends Bond Yields Soaring
Stock-market investors braced for a restless holiday weekend after Treasury bond yields soared on Friday to nearly eight-month highs following news of another surprisingly strong U.S. jobs report.
U.S. stock markets were closed in observance of Good Friday, but the surge in bond interest rates prompted analysts to fret that stocks--whose market indexes are currently hovering near record highs--could face rough sledding when trading reopens Monday.
The yield on the benchmark 30-year Treasury bond jumped to 6.82%--its highest level since Aug. 23 and up from 6.67% late Thursday. The price, which moves inversely from yield, skidded nearly 1 7/8 points, or $18.44 for every $1,000 in face value, in abbreviated trading that ended early at noon EST.
The shortened session resulted in light trading volume that exaggerated the rise in yields, analysts said. Many analysts branded the sell-off an overreaction to the slim possibility that the job news will encourage the inflation-wary Federal Reserve Board to raise interest rates at its next rate-setting meeting in May.
Nonetheless, the bond rout was a stinging reminder of what happened a month ago, when another strong employment report triggered a brief but stunning sell-off of both stocks and bonds.
“It could be bad news” for stocks Monday, said A. Gary Shilling, who heads a money-management firm bearing his name in Springfield, N.J.
The bond sell-off was also another reminder of how good news for Main Street can be bad news for Wall Street. Stock and bond investors generally prefer a steady, moderately growing economy over a faster-growing one that might trigger higher inflation.
Friday’s surge in Treasury bond yields was the latest in a series of rate rises sparked by the economy’s faster growth. Despite a cut in short-term rates by the Fed in late January, the 30-year Treasury bond yield has jumped from 5.94% at year-end 1995.
The latest surge in bond yields will in turn push consumer borrowing rates higher, with 30-year fixed-rate mortgages possibly rising to 8%--up from less than 7% earlier this year.
The bond rout was triggered by Friday’s Labor Department report that U.S. companies added 140,000 jobs in March, far more than expected. The job increase--following the giant surge of an adjusted estimate of 624,000 jobs in February--signals a briskly growing economy.
That’s good news for workers, but it raises concern among many investors because the gains would appear to preclude any need for the Fed to trim interest rates further.
Yields on shorter-term Treasury notes and bills also surged, as did yields on many tax-exempt issues, with their prices tumbling. The Bond Buyer price index of 40 actively traded municipal bonds closed at 112 3/4, down 1 1/2 points from late Thursday.
Rising interest rates bode ill for the bond market because they make existing bonds’ yields less attractive, forcing traders to push their prices lower. They also hobble stocks because they raise corporate borrowing costs and thus bite into profits.
However, some analysts suggested that stocks, which have continued to surge despite declines in bond prices, could continue to defy bonds.
When the previous jobs report was released March 8, it triggered a 171-point drop in the stock market’s Dow Jones industrial average. But on a percentage basis, the 3% decline was not even among the 100 worst on record.
And on the following Monday, the stock and bond markets rebounded sharply, with the Dow leaping 110 points. Within days, the blue-chip average had recouped all of its March 8 loss.
Now, “I’ve been talking with a number of portfolio managers, and they are clearly not anticipating a big pickup in the economy or inflation,” which should persuade them to keep bidding stocks higher, Shilling said.
“What’s going to be fascinating Monday is whether they put their money where their mouths are,” he said.
Economic factors aren’t the only things that will be on investors’ minds Monday. The torrent of first-quarter corporate earnings reports is expected to start next week and is likely to include those of several big high-technology firms such as Motorola Inc. and Microsoft Corp.
Up to this point, most stock investors have been unperturbed by the prospects of an overheated economy and higher inflation. The Dow, after soaring 33.5% in 1995, is up 11% more so far this year, and the broader Standard & Poor’s 500 and Nasdaq composite indexes are up more than 6% this year.
As a result, investors poured an additional $5.78 billion into stock mutual funds in the week ended Wednesday, the largest amount in two months, according to the fund research firm AMG Data Services in Arcata, Calif.
In foreign markets, Japanese stocks closed at their highest levels in more than four years Friday, as the Nikkei-225 index in Tokyo rose 224.68 points to 21,695.84. But stock markets in Britain, Germany and most other European nations were closed for the holiday.
Times wire services contributed to this report.
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More Jobs
Employers added 140,000 jobs in March. New jobs, in thousands:
March 1996: 140
Source: Labor Department
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Bond Yields Jump
Unexpectedly strong employment figures sent bond prices tumbling and yields soaring. Weekly closes on the 30-year Treasury Bond:
Friday: 6.82%
Source: TradeLine
