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Treasuries End Sharply Lower

The June 10-year note closed down 1 7/32+ at 103-17 this afternoon. The note, as did the entire curve, came under very heavy pressure. Chairman Greenspan altered the text of his testimony last week to reflect that the economic recovery was now "already well underway" in his speech today before the Senate Banking Committee. This took the legs out from under the note contract as it plummeted quickly and never recovered ahead of the payrolls report on Friday.

S&P MMS expects nonfarm payrolls to post a decline of 50,000 in February. Despite recent strength in other economic data, S&P thinks that the February jobs report is not likely to reveal much improvement from recent trends. In addition, seasonal factors pose an additional challenge -- especially relative to January. The MMS survey median revealed that many economists expect the headline payroll number to be unchanged from the January report, so a print in line with our forecast may provide Treasuries with some mild support.

Manufacturing is expected to again account for the bulk of the weakness, with factory jobs contracting another 65,000. The unemployment rate is expected to rebound to 5.8% after the surprising dip in January to 5.6%. The workweek, however, is expected to give a preliminary indication that firmer conditions are around the bend, with this leading indicator rising to 34.1 hours from 34.0 hours. Finally, hourly earnings are expected to rebound 0.3% following January's flat reading.

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