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Bonds gain on jobs data
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December 3, 1999: 9:13 a.m. ET
Treasury yields fall on low wage gains, but inflation fears remain
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NEW YORK (CNNfn) - Treasury bonds rose modestly Friday after a government report showing subdued wage growth in November eased investors worst fears about rising inflation.
But the advance was restrained because Labor Department’s jobs report also showed continued labor market tightness, keeping alive concerns the Federal Reserve may have to hike interest rates to slow the economy.
The bond market, which sold off heavily in the days ahead of the report, moved higher Friday. Just before 9:10 a.m. ET, the price of the benchmark 30-year bond rose 14/32 to 97-26/32. Its yield, which moves inversely to the price, fell to 6.28 percent from 6.32 percent Thursday.
"I think that the important fact is that that average hourly wages did not move sharply higher,” John Lonski, senior economist at Moody’s Investors Service, said referring to average hourly earnings gains of 0.1 percent, well below expectations.
Still, Lonski said the report, which showed unemployment at a 29-year low, illustrated the kind of labor market tightness that may prompt the Federal Reserve to hike rates ahead.
"The tight labor market remains a major restraint on bonds,” Lonski said. "By no means does it rule out a rate hike.”
Ahead of the report, analysts worried whether the data would seal the case for a Federal Reserve interest rate hike ahead.
Federal Reserve Governor Laurence Meyer helped those worries, saying earlier this week that the nation’s extraordinarily tight labor market might justify another rate hike.
The speech suggested that employers will have to raise wages, triggering inflation, which erodes a bond’s value. The Fed has tightened credit three times this year, bringing its main lending rate to 5.50 percent.
Ahead Friday, factory orders are seen falling 0.6 percent in October following a 0.9 percent decline in the previous month.
Dollar mixed
One day after falling below the symbolic $1 mark, the euro edged higher against the dollar Friday, showing no reaction to the jobs data. The euro rose to $1.0015 from $1.0009. Just eleven months after its launch, the euro Thursday fell to an intraday low of 99.93 cents. But analysts called the move’s significance more psychological than fundamental.
Ahead, economists polled by Reuters said the euro is in for a rough ride in the next few weeks but should gradually pull away from the danger zone of dollar parity in 2000.
The dollar fell against the yen, also unaffected by the jobs data, dipping to 102.35 from 102.71 Thursday. But analysts see the yen, which rose to a four-year high against the dollar earlier this week, as retreating ahead. Currency analysts surveyed by Reuters predict the seemingly unstoppable yen will cede some terrain against the dollar over the next 12 months as Japan's economic recovery disappoints. 
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