BOND REPORT: Treasury Yields Subdued Ahead Of Jobs Report, ISM Data

By Sunny Oh Features Dow Jones Newswires

August job report will come in at 8:30 a.m. Eastern. The median consensus forecast is for 170,000 new jobs in August.

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Treasury yields saw muted trade early Friday ahead of a closely watched jobs report, but the significance of the data comes against the backdrop of Hurricane Harvey, which analysts say may affect the completed number and could exert pressure on the Federal Reserve to delay normalizing interest rates.

The benchmark 10-year Treasury yield rose 0.7 basis point to 2.129%, versus the 2.122% seen in the previous session. The yield for the 30-year bond added 1.5 basis point to 2.740%, even as the 2-year note's yield edged lower 0.9 basis point to 1.318% from 1.329%.

Traders are gearing up for August's job report, arguably the most important economic piece of data this week, at 8:30 a.m. Eastern. Economists surveyed by MarketWatch expected nonfarm payrolls to rise to 170,000 in August, falling from the solid 209,000 notched in the previous month. Although a few market analysts said they would keep their eye on the wage component of the report, instead.

But Friday's data comes amid Hurricane Harvey, which has dealt a blow to the U.S.'s refining capabilities and could influence this month's numbers in part because Texas is the second-largest regional economy in the country. Dr Joel Myers, founder of AccuWeather, estimated the final bill for the damages to come to $190 billion (http://www.marketwatch.com/story/hurricane-harvey-could-cost-190-billion-be-worst-ever-us-natural-disaster-says-accuweather-2017-08-31).

"The employment report would not have the same impact as we had before with Harvey going on," said Bryce Doty, senior fixed-income manager for SIT Investment Associates. "It won't make one iota of difference for the September 15th meeting."

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And even if a uniformly strong jobs report comes out, some traders said dovish sentiment may keep a lid on Treasury yields. The Federal Reserve may be tempted to keep rates lower for longer if it senses accommodative monetary policy could benefit the Texan economy as it undergoes recovery.

"I favor buying dips if the data come in stronger than anticipated as Harvey will have a huge dovish affect on FOMC policy decisions going forward," said Tom di Galoma, in a note to clients.

Investors will also brace for a batch of economic data after the nonfarm-payrolls report. The ISM manufacturing index, construction-spending data and consumer sentiment numbers will be released at 10 a.m. Eastern. Vehicle sales reports will be released throughout the session.

Elsewhere, European bonds faced selling pressure after European Central Bank official Ewald Nowotny, a member of its policy-setting committee, played down the strength in the euro, and suggested it would not hinder the ECB's decision making when it decides to gradually pull out of its asset-purchasing program, according to Reuters (http://www.reuters.com/article/eurozone-bonds/update-1-euro-zone-yields-rise-as-ecbs-nowotny-plays-down-euro-effect-idUSL8N1LI22U).

The 10-year German government bond's yield rose 3.4 basis points to 0.395%.

The eurohas risen to $1.20 on Tuesday (http://www.marketwatch.com/story/heres-whats-driving-a-resurgent-euro-rally-2017-08-28), its highest levels since early 2015, drawing concerns that the deflationary impact of a strengthening currency could put a spanner in the ECB's plan to withdraw monetary stimulus.

(END) Dow Jones Newswires

September 01, 2017 08:19 ET (12:19 GMT)