Weak U.S. jobs data renew QE bets

NEW YORK Mon Apr 9, 2012 3:46pm EDT

NEW YORK (Reuters) - Disappointing U.S. job growth reported last Friday favored safe-haven assets and supported short-term rates futures contracts on Monday as another round of large-scale bond purchases to support the U.S. economy looked more likely.

On Friday, government data showed U.S. payrolls grew by 120,000 jobs last month, fewer than the 203,000 new jobs predicted by economists. The jobless rate fell to a three-year low of 8.2 percent, largely because discouraged workers stopped looking for jobs.

The sluggish pace of job creation since the end of the worst recession in 70 years has remained a top concern for the Fed and has fueled speculation whether the U.S. central bank would undertake a third round of quantitative easing, nicknamed QE3, to prevent the economic recovery from fading.

The Dec 2014 Eurodollar contract traded unchanged at 98.835. On Friday it recorded its biggest one-day rise since Jan 25 when it rose 17.5 basis points.

This implied traders see the unsecured funding cost for three-month dollars for banks and Wall Street at the end of 2014 at 1.165 percent.

The U.S. Treasury sold $31 billion three-month bills at a high rate of 0.085 percent, awarding 51.12 percent of the bids at the high.

"Recent auctions had been aggressively bid, but with the larger-than-expected announcement of 4-week bills, buyers took a small step back and the 4.2 ratio of bids received over those accepted was the weakest since August 8," said Thomas Simons, money market economist at Jefferies & Co. in New York.

Dealers got 60.8 percent of the sale, just above their average since June 2009 of 59.3 percent.

"The buyside backed off in this auction after very strong takedowns in the last two weeks," Simons said.

The Treasury's auction from buyside investors helped to generate the short stops in the bidding."

The Treasury sold $29 billion six-month bills at a high rate of 0.150 percent with the 4.37 bid-to-cover ratio the weakest since February 27, 2012, Simons said.

Dealers got 50.6 percent of the sale, their smallest portion since December 12.

On Thursday, the benchmark London interbank offered rate on three-month dollars was fixed at 0.46915 percent. [ID:nEAP000028] Many European financial markets were closed on Friday and Monday for the Easter holiday.

(Editing by James Dalgleish)