us financial futures market week in review

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    Debt futures went on a roller-coaster ride this week.

    The Dec Treasury bond and 10-year note futures raced to their highest levels since mid-July around the middle of the week, when a weak Chicago Purchasing Mangers Index and consumer-confidence report left the market questioning just how strongly the economy might be recovering.

    But by the end of the week, the contracts were in a free-fall after the Labor Department Friday reported the first monthly rise in non-farm payrolls in eight months. That removed some of the worries about a so-called "jobless recovery."

    "It appears the majority opinion on Wall Street is that the upturn in September payrolls - the first in eight months - is a prelude to more active hiring programs by business firms," said William V. Sullivan Jr., senior economist with Morgan Stanley. "If we see continued gains in new hiring, thatis going to provide an additional platform of support for the economy and could even allow the economy to establish and gain some additional momentum in the quarters to come."

    That, of course, is bearish news for fixed-income products. And as a result, the Dec Treasury bonds fell nearly 2 1/2 full points on Friday alone. The bid down day on Friday meant debt futures settled lower than where they left off a week ago.

    Dec 30-year Treasury bonds settled Friday at 108-28, well down from the close of 111-04 last week. Dec 10-year notes finished at 112-15.5, down from their settlement of 113-26.5 last week.

    Following is a day-by-day recap of the week's highlights.


    The market fell back from the previous week's two-month highs largely on profit taking and long liquidation. Stronger equities also played a role.

    "We had a four-point rally in five sessions," said David Hightower, president of the Hightower Report, about the previous week's surge in Dec bonds. "We had some critical news, but not dramatic. So that was a pretty hard run."

    The Dec bonds and 10-years hit their highest levels since July on Friday. Dec bonds climbed from a low the previous week of 107-07 to a high Friday of 111-15, while the 10-year notes climbed from a low last week of 111-13.5 to a high of 114-03 on Friday.

    "The equity market had a nice rebound and the bond market was significantly overbought from that marvelous run that occurred over the last month," said John Person, head financial analyst with Infinity Brokerage
    Services. "It was a little ripe for a sell-off. There is some liquidation and profit taking against this high."

    The Dec DowSM added 62 points. Often, stocks and bonds move inversely to one another on asset-reallocation flows.

    Dec 10-year notes fell 10.5 ticks and Dec Treasury bonds lost 25 ticks.


    Prices resumed the previous week's upward march when two major economic reports were both much weaker than forecast. That, said analysts, meant the market continued to push back expectations for when any Fed rate tightening might begin and even left a tiny minority looking for one more cut in the federal-funds rate.

    The Chicago Purchasing Managers Index fell to 51.2 in September from 58.9 in August. Forecasts had been for a much more modest decline to around 56.5.

    The consumer-confidence index fell to 76.8 in September from 81.7 in August. Various consensus forecasts had called for a reading from 81.4 to 80.3 in September.

    "It was certainly a plus for the bond market, and we're rallying the heck out of this thing," said one contact.

    Buying picked up in Dec Treasury bonds as they broke through Friday's longtime high of 111-15, peaking at 112-11. Dec 10-year notes peaked at 114-21.5, easily racing through Friday's longtime peak of 114-03. For both contracts, this was their strongest level since July 15.

    For the day, Dec bonds gained 1 26/32, while the Dec 10-year notes rose 1 4/32.


    Prices mostly consolidated, with traders reluctant to take aggressive positions ahead of Friday's monthly employment report. Dec bonds had an inside day in which they held within Tuesday's range, although Dec 10-year notes managed to extend Tuesday's long-time high to 114-24.

    There was some early profit taking, and the market initially ticked down some more about the time the Institute for Supply Management issued its monthly manufacturing survey. The price decline apparently was seen by some as a buying opportunity as the market rebounded, one contact said.

    The I reported that the headline business index of its manufacturing survey fell to 53.7 from 54.7 in August. This was weaker than published consensus forecasts that called for a reading of somewhere between 54.5 and 55.2. However, many traders already had been looking for a number weaker than those forecasts following the steep fall that occurred in the Chicago PMI on Tuesday.

    Dec 10-year notes finished steady, and the Dec bonds dipped 3 ticks.


    A combination of fundamental and technical influences tugged the market in both directions. Ultimately, however, they ended up lower on a day when much of the activity was squaring and other jockeying ahead of Friday's key jobs report.

    The market opened with a sharply weaker tone, which was blamed mainly on upbeat remarks about the economy the night before by Dallas Fed President Robert McTeer, as well as selling in sympathy with a pummeling for euro-zone bonds that occurred overnight. The declines were extended when a report on weekly first-time jobless claims said much of a rise was actually people who had wanted to file in the previous reporting period, but couldn't when eastern employment offices were closed due to Hurricane Isabel.

    "Once the market began to discount that, it was not terribly good news for the bonds," said Jim Collins, analyst at Citigroup Global markets.

    The government reported that initial first-time jobless claims rose 13,000 to 399,000 last week. Consensus forecasts had called for around 395,000 to 400,000.

    There was also early technical weakness, with gaps left on charts for day trade only in both Dec bonds and 10-year notes. Those gaps were later filled, however, when the market staged a partial comeback.

    MCM analyst Roseanne Briggen commented that the rally was helped along by comments from several Federal Reserve officials suggesting the labor market remains stagnant.

    Technically, the market bounced from some key support levels, explained John Person, head financial analyst with Infinity Brokerage Services.

    For instance, when the Dec 10-year bonds bottomed at 110-12, they were right around the nine-day moving average. Perhaps even more significantly, he continued, the market tested and held support at the low for the week of 110-09.

    "We saw a technical bounce off of those two important areas," he said.

    A similar situation existed in Dec 10-year notes, which bottomed at 113-17. Their nine-day moving average lies around 113-14, and their low for the week was 113-15.

    In other economic news, the government said factory orders fell 0.8% during August.

    When the dust finally settled, Dec 10-years were down 19.5 ticks, with the Dec bonds losing 24 ticks.


    Debt futures took a beating after the strong report on non-farm payrolls, with the Dec bonds breaking down through the support levels around 110-09 to 110-12 that had held up on Thursday. They also fell through a price channel around 109-08, bottoming at 108-20.

    Dec 10-year notes also fell through some key technical levels.

    Non-farm payrolls rose 57,000 during September, when various consensus forecasts had called for a decline of 15,000 to 25,000 jobs. The unemployment rate held at 6.1%.

    Furthermore, the government is now reporting that the loss of jobs in August was not as great as previously reported. August payrolls were revised to a loss of 41,000, compared to the previously reported 93,000 decline.

    "The market was leaning the wrong way in terms of what they were expecting in non-farm payrolls," said Alex Manzara, vice president with Refco. Much of the selling appeared to be long liquidation, he added.

    When the beating finally ended, Dec 10-year notes had lost 1 17/32, and the Dec Treasury bonds had given up 2 14/32.

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