US TREASURY OUTLOOK-Car sales, waiting for payrolls
Monday March 1, 5:49 pm ET
By Ellen Freilich
NEW YORK, March 1 (Reuters) - Treasury investors will look at February car sales and weekly store sales numbers on Tuesday, but mostly the market is in a wait-and-see mode until data on the labor market later in the week.
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The market rejected low yields reached early Monday, said John Spinello, fixed-income strategist at Merrill Lynch Government Securities, observing that 10-year note yields had returned to just below 4 percent by late in the session.
"Four percent is a reasonable level (for the 10-year yield) and I don't think it's going to change this week, barring any dramatic decline in the jobless claims report on Thursday," said Anthony Karydakis, senior financial economist at Banc One Capital Markets.
Economists polled by Reuters estimated that car sales totaled an annualized 5.4 million last month.
But the vehicle sales numbers are not expected to elicit much, if any, ripple in the market.
"I'm very hard pressed to think when the last time was that car sales caused a market reaction," said Karydakis.
Even if the market does not react to the data, car sales numbers are important, said Josh Stiles, senior bond strategist at IDEAglobal. "We have a good look at what happened with consumer spending in the last quarter of 2003 and in January of 2004. Now we're looking for $30 billion to $60 billion in tax refunds to lift consumer spending -- at least temporarily."
Stiles said the market will watch to see how the gradual transfer of tax refunds to consumers will play out in auto and retail sales.
"You'd like to see car sales do better in February than they did in January if we're counting on 4 percent overall growth in the first quarter," he said. "Autos tend to be an interest-rate sensitive and leading sector of the economy."
Tuesday's weekly reports on chain-store sales will also be of interest, Stiles said.
"That was an area of clear strength in January and early February numbers showed some continuation of that," he said.
Analysts said yields are not likely to wander far astray before Friday's February employment data.
"You should get some good support around 4.125 percent (on the 10-year yield) if the market gets more defensive as the week goes on," Stiles said. "That's because people are not going to bet heavily on a large (payroll growth) number."
After several months in which some strong payroll growth forecasts were quashed by the reality of very tepid hiring by businesses, expectations for a big payroll growth number have waned, analysts said.
The Labor Department will release its February employment report at 8:30 a.m. (1330 GMT) on Friday. Economists polled by Reuters expect non-farm payrolls to have risen 125,000, after growing by 112,000 in January, while the unemployment rate is forecast to hold unchanged at 5.6 percent.
"A really big (job growth) number would be a bigger surprise than a soft number," said Stiles.
Overall, the market appears to have been convinced that interest rates will stay steady for months to come.
As a result, "the market is fine," said Karydakis. "On Monday, we got knocked down a little bit, but it was no big deal given the rally we had Friday late in the day."
If the Labor Department reports that job growth in February was much higher than estimated, that will upset the market "in a major way," leaving "no excuse to remain at these levels," Karydakis said.
To maintain the 10-year yield at 4 percent or slightly below, the market needs to see "an underwhelming employment report, something totally unimpressive" as far as job growth is concerned, he said.
But whatever the February employment report, the bond market's trading range is not in jeopardy, Karydakis said.
"There's no reason to expect any breakout in the near future," he said. "Even a strong payroll number could only send the 10-year yield to 4.10 percent or 4.15 percent, so 3.875 percent to 4.25 percent stays the range for the 10-year yield. There's nothing on the horizon to put that to the test."
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