Treasury bond prices plummeted and yields soared to 17-month highs Friday in a powerful selloff touched off by news that the economy added more than a quarter-million jobs in April.
The selling was intensified by the Federal Reserve's apparent failure to immediately raise interest rates in response to the steep employment gain. The inaction heightened fears that inflation pressures, unchecked by tighter monetary policy, would eventually diminish the value of bond returns.The price of the Treasury's main 30-year bond tumbled 2 3/16 points, or $21.25 per $1,000 in face value. Its yield, which moves in the opposite direction, leaped to 7.54 percent from 7.33 late Thursday, the highest point of the Clinton administration's term in office so far.
The bond yield last closed this high on Dec. 3, 1992, at 7.55 percent.
The Labor Department reported that 267,000 jobs were added in April, despite a Teamster's union strike against trucking companies that idled 70,000 workers. The jobs increase far outstripped the 170,000 gain many economists had expected.
The news of a rapidly growing economy led many market players to anticipate that the Federal Reserve would immediately step in to raise short-term interest rates to moderate the growth. But bond prices plunged further around early afternoon after it became clear that the central bank was refraining from a swift response.
"When the Fed didn't raise rates, it got people nervous about inflation," said John Canavan, an analyst at Stone & McCarthy Research Associates Inc. in Princeton, N.J.
Also depressing the bond market was a nearly $10-per ounce jump in gold prices, which further heightened inflation fears.
The falling bond prices depressed stocks. The Dow average ended down 26.47 at 3,669.50.