Starting Wednesday, three data points coming out this week on jobs in August will help Treasury traders predict the direction the economy could take, but they probably won't move prices drastically themselves, analysts said on Tuesday.
Many economists fear the United States is teetering on the edge of another recession, pushed by recent turmoil in Washington over the U.S. debt ceiling as well as upheaval in the Middle East and a debt crisis in Europe. A clear view of the August U.S. employment picture may either confirm or work to dispel that fear.
Another economic slowdown could lead the Federal Reserve to try to stimulate growth again through monetary easing, and it would no doubt change the view Treasury investors hold on the movement of interest rates in the near future.
Treasury investors, then, are viewing the jobs data as a channel through which to anticipate further Fed action.
A measure of private job growth, ADP's August National Employment report is expected to show additions of 100,000 jobs in the private sector. It will be released on Wednesday at 8:15 a.m.
Thursday morning, weekly jobless claims and continuing claims will provide another leg of information about national unemployment. Weekly claims are forecast to fall to 410,000 from 417,000 a week ago.
On Friday, the grand finale: The U.S. Labor Department's August nonfarm payrolls report, accompanied by the latest reading of the national unemployment rate. Analysts polled by Reuters are looking for a 75,000 gain in nonfarm payrolls with unemployment holding steady at 9.1 percent.
The treasury market's going to bump along very quiet in thin conditions, said William O'Donnell, head of interest-rate strategy at RBS Securities in Stamford, Connecticut.
People will explain away a strong number and get worried about a weak number. I think people are already looking at this employment data knowing there's month-to month volatility.
MF Global futures trader John Brady, who is based in Chicago, saw a direct connection between the payrolls number and future Fed action.
I think the employment number and the ISM number are going to tilt them in whatever direction they're going to go, he said. Thursday, Friday, employment and ISM, that will give them the mandate.
But in themselves, the jobs numbers might not be big enough to get Treasuries out of the range they've traded in this week.
We're at 2.10 percent to 2.25 percent range in 10-year yields, said Bret Barker, portfolio manager at TCW in Los Angeles, which manages $65 billion in fixed income assets.
You get to the point where even 2.20 percent or 2 percent on 10-years, to be buying at those levels if you're already long, that's taking a really, really dim view on the economy. you'd have to really think inflation's going to be very tame and growth will be around 2 percent for the next X number of years.
(Editing by James Dalgleish)