The one-two punch of the September payrolls plunge (-199,000) and early close ahead of Columbus Day on Monday made for turbulent morning session with little follow-through into the close on Friday. The larger than expected payrolls drop, accompanied by a steady 4.9% unemployment rate, did not account much for the survey period after September 11. This boded ill for the labor outlook next month, a point that Treasury Sec. O'Neill acknowledged. Treasuries largely held on to their extraordinary gains for the week, with profit-taking on stocks the ahead of the long-weekend being a factor.
So, too, some time decay selling on benchmark December 10-year volume dovetailed with the ebb of the long end into the close. The front-end remained racy after tech giants Gateway, Advanced Micro Devices and Sun Microsystems warned, and the Anthrax bid played a role amid another contamination scare/hoax in Florida, as did weekend military strike risk.
The December bond closed down 3/32 at 106-25, off highs of 107-06 set during the knee-jerk after the data. The two-year note and 30-year bond curve steepened out to +266 basis points, as bills and two-year notes sharply outperformed the blunted action on the rest of the maturities.