Upbeat Employment Data Batters Treasuries
The improvement in the February employment data were the figures that broke the back of the Treasury market Friday. Though the data merely confirmed what Greenspan had suggested Thursday and added to the wealth of other information indicating the economy had turned the corner, it battered bonds nonetheless. Treasuries sank across the board on widespread selling after the headlines showed a 66,000 increase in the payroll figure and a 5.5% unemployment rate. Losses were initially minimized given that risk was for a good report. News that the BLS suggested special circumstances were behind the improved report also encouraged some short covering, bottom-fishing and retail buying. But Treasuries soon buckled under their own weight and losses were extended through the afternoon as key technical supports were pierced.
Shorter dated instruments were hit the hardest as the Fed policy scenario was fast-forwarded to a shift in the bias to March and a tightening as soon as May. The two-year note and 30-year bond spread shrank eight basis points to 215 basis points, the narrowest since September 11. Another onslaught of corporate issuance added further weight to the Treasury market.