Treasury yields fall after weak US payrolls

Dismal US jobs data sent Treasury yields tumbling on Friday, as the disappointing numbers reinforced the view that the US economy had slowed down and could lead the Federal Reserve to delay raising interest rates.

Trading was thin because of the Good Friday holiday, but the greenback slid 1.3 per cent versus the euro to trade back above $1.1 and the 10-year US Treasury yield slipped 10 basis points to 1.81 per cent - the lowest since early February - after just 126,000 jobs were created last month, compared with expectations for a 245,000 reading.

None of the 98 economists surveyed by Bloomberg had forecast such a low headline jobs figure, and February's job creation was revised down from 295,000 to a more muted 264,000.

James Knightley, an economist at ING, said the report was "clearly a bad miss" but attributed the economic softening to disruptions caused by West Coast port strikes.

"With these factors having dissipated, we expect the 'hard' data to bounce back in the next few months and the payrolls figures to also recover," he wrote in a note.

"Indeed the strength in consumer confidence offers clear encouragement for this view. Consequently a June rate hike from the Federal Reserve remains on the agenda, but we need to see the rebound come through quickly."

Nonetheless, the DXY dollar index, which measures the US currency against a basket of its biggest counterparts, slumped 0.7 per cent to a two-week low of 96.72.

In contrast Asia-Pacific equities ended the week on a quiet note as bourses across much of the region were closed for Good Friday.

In Japan the Nikkei was up 0.4 per cent, shrugging off a disappointing purchasing manager's index for the services sector in March.

Markit's monthly index of the services sector fell for the third consecutive month to 48.4 in March, underscoring the difficulties of revitalising the world's third-largest economy. A score above 50 is needed to indicate growth. In February it was 48.5.

Elsewhere in the region the Shanghai Composite was down 0.2 per cent and South Korea's Kospi Composite was up 0.3 per cent.

Markets were closed in Hong Kong, Australia, New Zealand, Indonesia and India.

US stocks went into the Easter break on a firmer note after a week of mixed data releases kept alive the debate over the outlook for the world's biggest economy - and when the Fed might raise interest rates.

Greece was back in the news as the markets awaited a response from creditors to Athens' latest list of proposed reforms, which remain key to unlocking further bailout funding for the cash-strapped nation.

In New York the S&P 500 rose 0.4 per cent at 2,066, giving it a 0.3 per cent gain over the holiday-shortened week. However, the US equity benchmark was still 2.4 per cent down from a record closing high a month ago.

Across the Atlantic the FTSE Eurofirst 300 index slipped 0.2 per cent on Thursday but was still up 0.6 per cent over the four-day period.

The week's keynote US data release - the March non-farm payrolls report - was due as stock markets in the US and Europe were closed for Good Friday.

There was some unsettling US economic news earlier this week, as the Institute for Supply Management's closely watched manufacturing index for March came in at its lowest level for 22 months - reflecting the strength of the dollar and soft overseas demand. Other US data this week painted a mixed picture of economic conditions.

"What markets are waiting for right now is confirmation that the data weakness from January, and especially February, was caused by temporary factors such as bad weather and the West Coast port labour dispute," said Hans Mikkelsen, credit strategist at BofA-Merrill Lynch.

"Hence the disappointing March data raised questions about the underlying strength of the economy, leading to a big rally in Treasuries."

Indeed, the 10-year US Treasury bond yield tumbled 7bp immediately after the ISM's release.

However, there was a more positive view on the prospects for the eurozone, after encouraging headline inflation data from the region this week and news that the final reading of the purchasing managers' manufacturing index reached its highest in 10 months.

"The recovery in the eurozone will continue, led by Germany," said Tobias Ruhl, an economist at UniCredit.

"We continue to expect [German] GDP growth of 0.4 per cent quarter on quarter in the first quarter of 2015, or 1.6 per cent annualised, but see significant upside risks."

Expectations of improving eurozone growth - plus the European Central Bank's huge asset buying programme - spurred a strong outperformance by European stocks in the first quarter of the year compared with their US counterparts.

And the impact of ECB quantitative easing continued to be felt in eurozone government bond markets this week, with yields across the curve remaining near record lows.

The German 10-year Bund yield touched a record 0.15 per cent on Wednesday before ending the week at 0.18 per cent - up 1bp on the day but 3bp down over the four-day period.

All eyes now will be on how Athens' proposed reforms - submitted to eurozone authorities on Wednesday - go down with its creditors.

Jonathan Loynes at Capital Economics said the latest list had a lot more credibility than previous versions. "On the face of it, the proposed measures could have a substantial impact on the public finances," he said.

"The projections incorporate more realistic assumptions for the economy than those in Greece's bailout programme."

But he added: "While there was no official response to the list from the so-called Brussels group, individual comments from officials and individual finance ministers suggested that there was more work to do."

As the markets awaited further developments, the euro was trading at $1.0879 - barely changed on the week.

But the dollar's softness did little to help gold or industrial commodities. The yellow metal was down $3 at $1,201 an ounce following a $21 jump on Wednesday, leaving it $2 up on the week.

Brent oil tumbled 3.8 per cent to settle at $54.95 a barrel - down $1.46 on the week - after news that Iran and world powers had reached agreement on the "parameters" of a nuclear deal.

Additional reporting by Jennifer Thompson

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