Friday's unemployment numbers were very disappointing. Economists had anticipated a
slowdown in hiring last month, but the 54,000
new jobs that were added in May was much
weaker than expected.
In addition, the unemployment rate worsened to
9.1% from 9% in April. Economists had predicted
the rate would tick lower to 8.9%.
Message to Congress from Bond experts and others:
Don't mess it up!!!!
According to bond experts the much-awaited jobs number didn't disappoint the bond bulls who were saying all week that the numbers would come in weaker, consistent with the rest of the economic numbers over the last two weeks but lack of action on the part of Congress will degrade the bond market
now and over time.
Some analysts attributed the weakness in hiring to one-time events, the jobs report was the latest sign that the economy is slowing down.
The darkening economic outlook has weighed on the U.S. stock market, which had its worst performance in May since August 2010.
Treasuries, meanwhile, have been climbing since early April, when the yield on the 10-year note was near 3.6%.
The yield, which falls when prices rise, had dropped below 3% for the first time in five months earlier this week as worries about the economy slowing down sparked a flight to safety.
The Treasury bills market continued to rally Friday after a disappointing labor report added to concerns about the strength of the economy.
Some analysts worry that the rally could be squashed when the Federal Reserve concludes its $600 billion asset purchasing program later this month.
The Fed has been buying billions of dollars worth of Treasuries since last year as part of a strategy called quantitative easing, or QE.
The goal is to boost economic activity by pumping money into the financial markets.
The Fed has already done two rounds of QE, and there is speculation that a third dose could be in the works. But economists say QE3 is unlikely, and that the Fed will probably not raise interest rates until next year.
The Federal Reserve has made it clear that it has no plans to launch a QE3 program of quantitative easing.
However, that could mean an interest rate hike later this year, if the economy improves.
But there is no reason for haste, given the latest news on economic growth. It is more likely we will see QE3 than a rate hike in the second half of 2011 although the probability of either event is low.
Sheila McKinney
