The unusual combination of the Good Friday holiday Friday, a potentially crucial jobs report and a truncated trading session could complicate the job of bond traders, even into next week. The bond market will remain open on Friday for a trading session truncated in observance of the holiday, even as European stocks and a large swath of the US market will remain closed. But Friday will also coincide with what some have billed as a blockbuster employment report, which could show further job increases of over a million in March.
This combination of reduced liquidity during the holidays and the potential for higher job earnings from the pandemic since the early fall has caused some unease among market participants. “If we have a surprise to the upside, will the Treasury market trade more than usual?” said Kent Engelke, chief economic strategist at Capitol Securities Management. In 1994, that is precisely what happened, the employment report was stronger than expected and the Treasury market faltered. Like now, the bond market closed early and the equity markets closed due to the Good Friday holiday. “It was a week after I started managing a fixed income department, and it was before cell phones. He was on the golf course, ”Engelke told MarketWatch. “The employment report was stronger than expected. Then on Monday the market sold quite spectacularly. “Also, government bonds traded on Thursday will change hands next Monday, and bonds traded on Friday will change hands next Tuesday, said Steve Feiss, head of Etico Partners fixed income. “That’s a risk for the buyer and the dealer.” Most of the time, Treasuries tend to settle the next day after they are traded. On a practical level, that means that bonds are moved from the seller’s account to the buyer’s account one day after a transaction has been agreed. See: Friday’s jobs report will be posted on a closed stock market – that’s only happened 12 times since 1980 Participants The market also expects little holiday trade on the eve of the employment report, a vital economic tick. “It’s a bit of an unusual period. Typically, at times like this, rates drift toward security. risk rather than risk, ”Padhraic Garvey, regional head of research for the Americas at ING, told MarketWatch. Garvey also believes that investors buying bonds to hedge against tight liquidity and volatility could be making a dangerous mistake as they risk being hit by an impressive payroll report on Friday, which could precipitate a selloff. in Treasury bonds. The yield on the TMUBMUSD10Y 10-year Treasury note, 1.684% stood at 1.68% on Thursday, after trading at a 14-month high of 1.77% earlier in the week. Bond prices move inversely to yields. While the average forecast is 675,000 monthly jobs, a growing number of analysts are raising the possibility that the Labor Department could report that the US economy added more than 1 million jobs in March. Such a number would underscore America’s impressive economic momentum, aided by fiscal stimulus funds and vaccination efforts. “The high expectations brought to the March employment data have set the stage for a potentially substantial market reaction,” wrote Ben Jeffry, rates strategist at BMO Capital Markets. -Joy Wiltermuth contributed reporting