Newton Condominiums

U.S. Treasury securities traders were relieved Thursday by news that the Bank of Japan will not raise interest rates in the near future. Treasuries have sold heavily on the prospect that foreign banks would begin raising rates and the Fed would have to follow suit. Rampant selling pushed the yield on the benchmark 10-year note to its highest level in months, and mortgage rates followed. But selling tapered off in the wake of a satisfactory auction of 10-year notes and reluctance to make any moves prior to tomorrow's February employment report. Yields ended where they opened, allowing mortgage rates to remain fairly stable.

Two economic reports had only modest impact on Treasuries. The U.S. trade deficit for January hit a new high, coming in at $68.5 billion -- higher than forecasts for $66.8 billion and far higher than the $65.1 billion recorded in December. Sharp increases in oil and energy prices were largely responsible for the widening trade gap, but substantial increases in imported wines also added to the total and increased the cost of foods. The huge trade deficit will dent first-quarter gross domestic product.

For the first time since Jan. 7, unemployment claims exceeded 300,000. First-time claims for the week ended March 4 rose to 303,000 from 295,000. Analysts were expecting a decline to 290,000. The more closely watched four-week average, which smoothes volatility, climbed to 293,000, while continued claims -- benefits paid to people out of work for more than one week -- rose to 2.51 million. This report showed a slight easing in the job market, which was a positive for bond traders who are concerned a tight labor market could lead to wage inflation.

Stocks fail to hold gains

Stocks opened to the upside, bolstered by news that the Bank of Japan will not raise interest rates immediately and laid to rest concerns Japan's near-zero rates would come to a halt. But worries about high interest rates, the huge trade deficit and the upcoming employment report turned optimism to pessimism. The three major indexes closed in negative territory, with the Nasdaq sustaining the steepest loss and the Dow Jones industrials dipping below 11,000.

Losses on the Dow would have been worse, but GM added 4.4 percent on news that there is an agreement in the works with parts supplier Delphi and the UAW that would avoid a strike and cut labor costs. Boeing was the only other component to gain more than 1 percent. Of the 20 that closed in negative territory, Exxon, Intel, JP Morgan and Home Depot each lost 1.3 percent. Caterpillar, an interest-sensitive stock, led with a 1.4 percent decline, and American Express was off by 1.2 percent.

There were some big gainers in the Nasdaq, but semiconductors and software had a tough day, as did search engines. Google's problems won't go away. It lost close to 11 percent on the session while Baidu, the Chinese search engine, was off by more than 4 percent. There were a few winners, such as Sun Microsystems, which gained close to 4 percent due to an upgrade. Biogen rose 5 percent on word that it can reintroduce its multiple-sclerosis drug Tysabri -- with restrictions.

As of 4 p.m. EST:

The Dow Jones industrial index closed down 33.46 points (-0.30 percent) to 10,972.28; the Nasdaq composite lost 17.74 points (-0.78 percent) to 2,249.72, and the Standard & Poor's 500 index gained 6.24 points (-0.49 percent) to 1,272.23.

The 30-year Treasury bond closed up 1/32 in price with the yield holding at 4.72 percent.

The 10-year Treasury note closed flat in price with the yield holding at 4.73 percent.

The five-year Treasury note closed down 1/32 in price with the yield holding at 4.74 percent.

The two-year Treasury note closed flat in price with the yield holding at 4.72 percent.

At 4 p.m. EST, average mortgage rates (zero discount points) based on rates collected nationwide were:

The 30-year conventional fixed-rate mortgage was at 6.126 percent, up from 6.122 percent on Wednesday.

The 15-year conventional fixed-rate mortgage was at 5.743 percent, down from 5.747 percent on Wednesday.

Coming up:

A very important economic report -- February employment data -- is due on Friday. Analysts are expecting somewhere in the vicinity of 200,000 jobs to be added to nonfarm payrolls. This is a number bond traders could probably live with. Unemployment is expected to creep up to 4.8 percent from 4.7 percent and wages are predicted to rise 0.3 percent, which would be less than the 0.4 percent increase posted in January. Hourly wages will be watched closely as a big increase could signal inflation.

Also on tap is the report on wholesale inventories for January, which are expected to increase 0.5 percent, half of the December total. The U.S. Treasury budget for February will also be released, but these reports will pale in comparison to the jobs report.

If the employment report comes in at or below predictions, Treasuries would likely rally. Stronger numbers would ignite selling. Overnight and into Friday mortgage rates should remain high but steady due to stability in yields today.

Carolyn Siegel

Carolyn@interest.com

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