POSITIVE OUTLOOK TEMPERED IN U.S. DEBT FUTURES
Higher oil prices and stronger than
expected U.S. employment growth led to sharp losses in U.S.
interest rate futures and diminished what had been a positive
chart outlook, financial analysts said.
    The increase of 319,000 in non-farm payroll employment
during February was above market expectations for a rise of
170,000 to 200,000 jobs and sparked selling in Treasury bond
futures that drove the June contract through key technical
support at 101-2/32 at the opening Friday, they noted.
    "I don't like that fact that we had a close below 101,"
said Prudential Bache analyst Fred Leiner. The 101-2/32 level
in the June bond contract had been the top of a three-month
trading range, which when penetrated during the rally Wednesday
led to bullish forecasts by chartists.
    But analysts called it a false breakout on the weekly
charts when the June bond closed at 100-10/32 Friday.
    Some also forecast that the high of the week at 101-19/32
may signal a bearish double top formation portending steep
losses.
    "I tend to go along with the double top scenario," said
Northern Futures analyst Eileen Rico.
    Rico noted that the possible formation, along with the fact
that the rally of the last two weeks in bond futures has
occurred on relatively low volume, were negative signals.
    Despite what could be a negative chart outlook, Leiner
remains cautiously optimistic, and June bonds should find
support between 100 and 99-16/32 next week.
    The optimistic outlook, as well as Leiner's expectation
that the yield curve will flatten in the near term, is based on
an improving inflation outlook.
    With the dollar stable and economic data giving the Federal
Reserve little room to ease monetary policy, "the inflation
outlook is improving," Leiner said, and that should lead to
relatively stronger bond prices than bill and Eurodollar
prices.
    Still, Leiner noted that the recent rise in oil prices
remains a concern for the inflation outlook.
    Oil rose during the week on reports that OPEC nations were
maintaining production quotas and official prices, and got an
extra boost Friday due to the suspension of oil exports from
Ecuador after an earthquake Thursday.
    "The runup in crude oil will be a short-lived phenomenon,"
said Carroll McEntee and McGinley analyst Brian Singer.
    The rise in oil prices over the past week has been largely
"media induced," Singer said. He noted that even though OPEC
production may be within quotas, "oil stocks are at
tremendously high levels."
    Although the Ecuador situation could cause a delay, oil
prices will eventually decline to the lows of late February, he
said, and that will be a supportive influence for bond prices.
 Reuter
