By Joe Plocek, Alyce Andres-Frantz and Steven Levine

WASHINGTON (MNI) – The coming week opens a new quarterly period and
the key event is Easter Friday’s March employment report, where analysts
look for about a +200,000 print to confirm good growth yet do little to
resolve the debate about why decent job gains remain consistent with
slow growth. Meanwhile, market participants hope the Treasury curve can
flatten on lack of supply.

Debate in the markets will continue about whether slow growth means
additional Fed intervention, with the attendant push-pull on bonds
leaving Treasuries in their recent range. Additional mortgage
origination ahead of fee hikes and corporate supply ahead of earnings
season begins on April 10 may pressure spreads.

Goldman’s international analysts, led by Silvia Ardagna, continue
to expect higher intermediate bond yields in major economies. They said
“the broader cyclical outlook supports the case for a gradual increase
in real rates, and we expect UST 10-year to trade at 2.50-2.75% in
2012H2, with German Bunds at 2.0-2.25% over the same period.”

Whether interest rates rise much will depend on how the Fed reacts
to incoming data, analysts said. PIMCO’s position is that “The
combination of stronger economic data and rebounding inflation
expectations makes it more likely that the Fed will hint at rather than
decide on QE3 when it meets again on April 25th.”

PIMCO’s strategist Tony Crescenzi notes that when QE ends, a large
buyer disappears and “global investors will be left to shoulder the
burden” of Treasury supply. Some of these investors already have stepped
up.

Strategist David Keeble at Credit Agricole said weekly ICI data
suggest “equity outflows have moderated significantly but, somewhat
surprisingly, bond inflows appear to have accelerated” and could run to
about +$34 billion in March. Most fund inflows are “heading toward
taxable bond funds” — governments, mortgages and corporates — and this
could be a market support ahead.

Analysts at TD Securities suggest Fed Chairman Ben Bernanke “raised
the bar for inaction” in a recent speech, saying that a drop back under
+200,000 jobs per month are a problem, while +250,000 might be required
to satisfy the Fed that things are improving. TD said this changed
market thinking — more asset buys from the Fed is facing a probability
function based on payrolls rather than the On/Off approach that the
market assumed.

Other analysts disagree. Pierpont Securities chief economist Steve
Stanley said Fed doves have shifted to the defensive and hawks are
gaining. “Barring a breathtaking swing in the economic data, the FOMC is
not going to adopt QE3 or any other further expansion or lengthening of
the balance sheet,” he said.

Deutche Bank’s economists highlight “that we are now at a point in
the year where the data has often disappointed over the last decade.
Over this period U.S. data has typically beaten expectations between
November and January but have then disappointed for 8 of the next 9
months with the notable exception of May.”

The median estimate for March jobs is +200,000. RBC’s economists
said the most important data next week are Monday’s manufacturing ISM,
which could soften, and the Friday employment report. They agree “the
hurdle to please the market has increased” for jobs. They say a
ratcheting down in jobs is possible due to a reversal of weather
effects and they estimate +205,000 for March jobs.

Good Friday, also employment Friday, has an early bond close and no
trading in stocks. That should make any market reaction protracted into
the next week.

There are no Treasury auctions this week, although new 3-10-30-year
supply is announced Thursday. With April tax collections building and
Floating Rate Notes in the offing, some economists indicate there are
risks that the sizes of the sales could be trimmed.

The Fed announced a new calendar of Operation Twist buys and sales,
and will, a friendly event since they are all buys.

April 2, Outright Treasury Coupon Purch 05/15/2020-02/15/2022, $4.25-$5b
April 3, Outright TIPS Purchases 07/15/2018-02/15/2042, $1- $1.5b
April 4, Outright Treasury Coupon Purch 02/15/2036-02/15/2042, $1.5-2b
April 4, Outright Treasury Coupon Purch 04/30/2018-02/15/2020, $4.25-$5b

In total, April has $44 billion buys nad $43 billion sells in 21
operations.

Several regional Fed officials and a CFTC commissioner have
speeches interspersed during the coming period.

A calendar of upcoming market events is below:

02-Apr 1000 Mar-12 ISM Index, est 53.5
02-Apr 1000 Mar-12 Help-wanted Online
02-Apr 1000 Feb-12 Construction Spending
10.00am St Lou Fed Pres Bullard-Mar 28 remarks released
April 2, Outright Treasury Coupon Purch 05/15/2020-02/15/2022, $4.25-$5b
11.00am UST announces 4wk bills.
11.30am UST auctions 3/6m bills.
12.35pm Cleveland Fed Pres Pianalto at OH Val Econ Rdtab
4.05pm SF Fed Pres Williams at SFU.
03-Apr — Mar-12 Domestic Vehicle Sales
03-Apr 0745 31-Mar ICSC-Goldman Store Sales
03-Apr 0855 30-Mar Redbook Average
03-Apr 0945 Mar-12 ISM-NY Business Index
03-Apr 1000 Feb-12 Factory Orders
April 3, Outright TIPS Purchases 07/15/2018-02/15/2042, $1- $1.5b
11.30am UST auctions 4wk.
03-Apr 1400 — FOMC Meeting Minutes
04-Apr 0700 30-Mar MBA Mortgage Application Index
04-Apr 0815 Mar-12 ADP Natl Employment Report
9.00am USTsy’s Geithner speech, Chicago Economic Club
04-Apr 1000 Mar-12 ISM Non-Mfg Index
April 4, Outright Treasury Coupon Purch 02/15/2036-02/15/2042, $1.5-2b
04-Apr 1030 30-Mar EIA Crude Oil Stocks
11.00am SF Fed Pres Willams speech.
April 4, Outright Treasury Coupon Purch 04/30/2018-02/15/2020, $4.25-$5b
05-Apr — Mar-12 Store Sales
4.00am ABA Q4 consumer delinq data.
05-Apr 0730 Mar-12 Challenger Layoffs
05-Apr 0830 31-Mar Jobless Claims
9.10am St Louis Fed Pres Bullard speech
05-Apr 0945 01-Apr Bloomberg Comfort Index
05-Apr 1030 30-Mar EIA Natural Gas Stocks
11.00am UST announces 3/6m bills, 3-10-30y.
05-Apr 1500 Mar-12 Treasury STRIPS
05-Apr 1630 26-Mar Money Supply (M2)
06-Apr 0001 Feb-12 Monster Employment Index
8.30am CFTC’s Sommers at panel on clearing.
06-Apr 0830 Mar-12 Non-farm Payrolls etc, est +210k
06-Apr 1500 Feb-12 Consumer Credit

** Market News International Washington Bureau: 202-371-2121 **

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