* Prices rise after Friday’s weak March payrolls report
* Europe, UK markets closed for holiday; volume light
By Emily Flitter
NEW YORK, April 9 (Reuters) – U.S. Treasury debt prices rose
on Monday, with most gains appearing in the longer maturities on
the yield curve, reflecting expectations that last Friday’s
disappointing U.S. payrolls report had increased the chances of
a third round of monetary easing measures by the Federal
Reserve.
The major stock indexes were each trading around 1
percent lower, another booster for Treasury prices.
But trading volumes were light, as markets in Europe and
Britain remained closed for the Easter holiday. Raymond Remy, a
Treasury trader at Daiwa Securities in New York, estimated
market volume was only half what it would be on a normal Monday.
“The market’s really quiet,” Remy said. “This despite the
fact that we have a lot going on this week with buybacks,
sellbacks and auctions.”
The Fed is both buying and selling Treasuries this week as
part of its Operation Twist, a program to extend the overall
maturity of its portfolio and lower long-term interest rates.
Meanwhile, starting on Tuesday, the Treasury Department will
auction $72 billion in three-year notes, 10-year notes and
30-year bonds.
Friday’s nonfarm payrolls report from the U.S. Labor
Department showed just 120,000 jobs were added during March, far
below the market’s median expectation of 203,000. Treasuries
rallied after the report but the market was only open for half a
day and other parts of Wall Street were closed for the holidays.
“We’re seeing more overhang from Friday’s weak payrolls
report,” said Gennadiy Goldberg, interest-rate strategist at
4Cast, Ltd. in New York.
“It definitely suggests that it’s not a one-way trip out of
the mess we’re in at this point. The market was getting a little
too optimistic on the data front.
“The Treasury market sold off a bit too fast. People were
starting to price out the possibility of any more Fed action.
Now they’re rethinking that position.”
Before Friday’s payrolls report, signs of steady improvement
in the U.S. economy had been dampening expectations that the Fed
would engage in more Treasury purchasing or a new mortgage
buying program to further stimulate the economy by lowering
long-term interest rates. Market participants had been
interpreting recent statements by members of the Fed’s
policy-setting Federal Open Market Committee to mean that the
bar for more easing was extremely high.
But analyst commentary on Monday widely echoed the notion
that more easing wasn’t as elusive as it had seemed just a week
ago.
The holiday market closures and lack of significant U.S.
economic data on the calendar for Monday made Friday’s report
even more central to market action.
Mike Schumacher, head of rates strategy at UBS Securities in
Stamford, Connecticut, said that in addition to the jobs data,
the most significant driver of trading activity in Treasuries
would be mortgage convexity hedging.
“The area of the worst negative convexity is right at 2.10
percent on the 10-year (yield),” he said. “There will be more
rapid trading.”
Mortgage convexity hedging is an operation performed by
banks and market participants who hold mortgages on their books
and decide they must prepare for a possible early repayment of
some of the mortgage loans by selling Treasury notes.
The benchmark 10-year Treasury note was last
trading 9/32 higher in price and yielding 2.03 percent, down
from 2.06 percent at Friday’s close. The 30-year Treasury bond
was last up 19/32 in price and yielding 3.19
percent, down from 3.22 percent late on Friday.
Price action, Schumacher said, would likely continue to be
“pretty choppy.”
