Business

Jobs report curveball for bond markets

Tomorrow is going to be a tricky day for the financial markets, especially for bonds.

The Labor Department will be announcing its jobs figures for August. Wall Street is guessing that 177,000 new jobs were created that month and that the unemployment rate will hold steady at 7.4 percent.

I’m not going to make a guess this month. I bought some Powerball tickets the other day, and I want all my luck to go toward correctly guessing those numbers.

You probably never heard the saying (because I just made it up), but “diluted luck is no luck at all.”

But here’s Wall Street’s problem with the job report: Bond prices have been declining steadily for months, which means that interest rates have been soaring. The 10-year US bond, for instance, hit 2.90 percent the other day and looks like a cinch for 3 percent very soon.

That’s an increase of a full percentage point just since May.

In other words, it will cost the government 30 percent more to borrow money over a 10-year period. You’ll be dinged for even more on loans.

And a stronger-than-expected jobs report tomorrow (which could be caused by faulty seasonal adjustments for teachers returning to work) might just put the 10-year bond at a level that’ll get people to start worrying about a slowdown in the economy.

Let me insult you for a minute by explaining this, just in case some kids are just tuning in.

If interest rates rise, it obviously becomes more expensive for everyone to borrow money. So many people who want to buy houses won’t be able to afford them. Companies won’t be able to expand. And Uncle Sam — already broke — will become more broke.

Higher interest rates are already going to complicate budget talks that the Congress and the White House will have to undertake once they stop playing war games.

In other words, even a sniff of prosperity — in the form of a better job market — will cause all sorts of bad things to happen to the economy.

Wall Street will be one thought ahead of you if there’s a too-good number on Friday.

In Wall Street’s collective brain, a good number will almost guarantee that the Federal Reserve will start cutting back on the $85 billion it prints every month to rig the bond market.

I said I wouldn’t predict tomorrow’s job numbers. But I will predict the one after that — the September figure.

The number produced for that month will be lowered by hidden assumptions the Labor Department makes while constructing the number. So that figure is likely to come in light of expectations.

The irony, of course, is that the Fed will probably already have cut back on its money-printing just in time for the most important figure to turn disappointing.