Bond market gets double-dose of mystery with storm-hit jobs

First, bond traders had to deal with stubbornly low inflation, which Federal Reserve Chair Janet Yellen called a "mystery."

This week they'll have a second puzzle to solve: how to trade a jobs report that analysts predict will be weak due to the havoc wrought by Hurricanes Harvey and Irma.

US employers probably added about 85,000 non farm workers in September, the smallest increase in six months, according to a Bloomberg survey. Ordinarily, that would be cause for alarm about the pace of economic growth.

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But with the storms' devastation so well known, traders will probably look past the slowdown and focus on the tone of Fed speakers and any progress on the Trump administration's tax plan, said Timothy High at BNP Paribas BSE 0.73 %. "Any number good or bad is likely to be met with some skepticism," said Subadra Rajappa, head of US rates strategy at Societe Generale.

So, how will the bond market react to Friday's payrolls report? If it meets or tops expectations, that just lines up with the three-week selloff in Treasuries, the longest slide since May. The risk is if it misses the already-depressed estimate, strategists say. That could spark a rally, especially after data last week showed the Fed's preferred inflation gauge is still hovering near the lowest level in a year.

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