Treasuries erase losses as earnings slowdown tempers jobs gains

Earnings Slows

While employment improved, today’s report showed compensation lagged behind. Average hourly earnings were unchanged last month and climbed 1.6 percent in October from the same time last year, the smallest gain since comparable year- over-year records began in 2007. Earnings for production workers rose 1.1 percent in the 12 months to October, the weakest since records began in 1965.

“It’s nice that more people were employed, which is a positive and over time can be helpful, the income side of things was not as robust,” Ira Jersey, an interest-rate strategist at Credit Suisse Group AG in New York one of 21 primary dealers that trade with the Fed. “With hourly earnings flat and the work-week actually down a tenth compared to the report last month, it’s a good report, but not a great report.”

U.S. consumer prices increased 2 percent in September from a year earlier, based on the latest data from the Labor Department, meaning 10-year notes have a negative real yield.

Inflation Reading

The difference between 10-year yields and similar-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for costs in the economy over the life of the debt, was 2.48 percentage points. The average during the past decade is 2.18 percentage points.

Employment and the economy are central themes in the campaign, with President Barack Obama and Republican nominee Mitt Romney each trying to convince voters they can best energize the expansion and create jobs. The jobless rate had stayed above 8 percent since February 2009.

“It probably improves Obama’s prospects,” said Richard Schlanger, who helps invest $20 billion in fixed-income securities as vice president at Pioneer Investments in Boston.

Bond investors are better off during the Obama administration now than four years ago, Bank of America Merrill Lynch bond index data show.

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