Corporate Finance : Weak US Jobs Data Trigger Bond Rally


Bond prices soared and yields slumped in early March, as the US employment data surprised market participants once again with a smaller-thanexpected rise in payrolls.

We probably need as many as six months of unequivocally solid labor data coupled with robust GDP [gross domestic product] growth to convince investors that the recovery is accelerating, says Kenneth L. Hackel, chief US fixed-income strategist at Merrill Lynch in New York.

With expectations for Federal Reserve rate increases receding, risk premiums have collapsed across markets, he notes.

Until the fillip provided by the jobs data, technical forces dominated, as bond traders remained fixated on currency moves and speculation about central bank intervention.

The dynamic interaction between the currency-intervention policies of Asian countries and the supply of US treasury securities should continue to have a substantial effect on both the level and shape of the US yield curve, according to Merrill Lynch analysts.

As long as the US dollar remains weak, intervention flows will remain strong and will keep downward pressure on US treasury yields, they say. In the event that China revalues the yuan, however, intervention in Asia could become less prominent.

If economic conditions were to improve and foreign central bank intervention declines, the US 10-year bond yield could rise toward 5% or higher, Merrill Lynch says.

Meanwhile, since foreign central-bank activity tends to be shorter-term issues, the shape of the yield curve is susceptible to changes in central bank buying, as well.

Bond yields may be somewhat more volatile over the near term because overall growth remains brisk and there are signs that labor inputs are on the rise, says Robert V. DiClemente, chief US economist at Citigroup.

But we suspect the center of gravity for 10- year yields could be somewhere between 3.5% and 4% in the next few months, he says.

Weak payrolls are not a sign of flagging momentum in recovery but rather an indication that companies continue to push the limits of the resources on hand through added hours and rising productivity, DiClemente says.

Rogers Wireless Places Notes

Toronto-based Rogers Wireless completed the private placement of $750 million 6.375% senior secured notes due 2014.

The company is a subsidiary of Rogers Wireless Communications, which currently operates nationwide in Canada under the co-brand Rogers AT&T; Wireless.

Rogers Wireless Communications is 56%- owned by Rogers Communications and 34%- owned by AT&T; Wireless Services.AT&T; Wireless is being purchased by Cingular, a joint venture between SBC and Bell- South of the US.

Rogers Wireless is redeeming $196 million of 8.30% senior secured notes due in 2007, $179 million of 8.80% senior subordinated notes due in 2007, and $333 million 9.375% senior secured debentures due in 2008.


Gordon Platt