Wednesday 21 February 2018

US treasury prices edge higher amid productivity concerns

US Federal Reserve Chair Janet Yellen
US Federal Reserve Chair Janet Yellen

Dion Rabouin

Longer-dated US Treasury prices edged higher yesterday as a weak report on US productivity suggested the economy may not be growing as quickly as anticipated, prompting investors to cut long-term inflation expectations and buy US government debt on the long end of the curve.

Non-farm productivity fell for the third straight quarter, the Labor Department reported, raising concerns about corporate profits and companies' ability to maintain hiring.

US employers added 255,000 jobs in July and an upwardly revised 292,000 jobs in June. Productivity has also become a favoured indicator of growth for Federal Reserve Chair Janet Yellen, who has pointed to the metric as a key factor in decision-making on interest rate policy, analysts said.

Treasuries moved in a tight range, however, as productivity is not generally seen as a major factor that will influence near-term action by the Fed.

"Productivity is usually not a day trade item, but I do think the weakness in that report is probably responsible for an early bid in Treasuries," said Lou Brien, market strategist at DRW Trading. "The lower-than-expected productivity, the third negative in a row, is something that Yellen will clearly notice."

Productivity fell at a 0.5pc rate in the second quarter. Economists polled by Reuters had expected a 0.4pc rise.

"The reason the economy has still been able to expand is because of labour input. Firms are hiring people at a reasonably healthy rate," said Joseph LaVorgna, chief economist at Deutsche Bank Securities in New York. "However, we do not believe this can last, because strong hiring in the face of weak productivity necessarily implies a further deterioration in corporate profit margins." (Reuters)

Irish Independent

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