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Bonds Sink on Jobs Report

The long-awaited jobs report on Friday did not bring a Fed cut as some had expected, instead likely hardening the resolve of the board to wait until March 20 and contributing to a fresh round of indigestion on Wall Street. February payrolls came in above low set expectations; the rate of unemployed held fast at 4.2% and hourly earnings worryingly rose to 0.5%.

The long-end had rallied ahead of the news as stocks came off the rails on another earnings warning and job cuts from Intel. But the June bond wilted after failing to clear 106 all the way back briefly below 105. The June bond buoyed back to 105-13 into the close as NASDAQ (-4.5%) and Intel's disease dragged stocks broadly lower and Cisco also confirmed it would slash staff 11%.

The curve flattened slightly, with selling in the middle of the curve. More selling of June 108 calls on 10s appeared to be a liquidation trade given the declines in open interest. Dealers suggest that a shop was involved with selling up to 25,000 June 108 calls over the past week, possibly to mortgage players hedging prepayment risk through options rather than outright.

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