MW: Treasurys cede gains as jobless rate unexpectedly declines
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices gave up earlier gains Friday, pushing 10-year yields up slightly, after a pivotal government report showed the U.S. unemployment rate unexpectedly declined last month to 9.7%.
Yields on benchmark 10-year notes (UST10Y 3.60, -0.10, -2.73%) rose 2 basis points to 3.62% after the report, after having been lower before the report. Bond prices move inversely to their yields; a basis point is 0.01%.
Yields on 2-year Treasury notes (UST2YR 0.80, -0.08, -8.61%) remained down, off 1 basis point to stand at 0.80% but paring an earlier decline that pushed prices higher.
While the Labor Department's estimate pegged the unemployment rate at 9.7% for January, economists had expected that the rate would remain equal with December's 10% rate. Read more on employment data.
The report also said the economy shed 20,000 nonfarm-payroll jobs in January, while economists expected the economy to add jobs last month.
Treasurys had been up before the data, extending a rally that began on Thursday amid heightening fears that the U.S. economic recovery wouldn't be so strong and as credit risks in some European countries jumped, increasing demand for the relative safe-haven of U.S. government debt. See more on Spain, Portugal credit worries.
"We take no great economic solace from this but neither do we see this as reason to spark much more of a rally than we've seen coming into the report," said strategists at CRT Capital Group.
On another front, interest-rate futures traders added to bets that the Federal Reserve would increase federal funds, its benchmark interest rate, by September. The fed-funds rate, the central bank's overnight target interest rate for loans between banks, has remained at a range of zero to 0.25% for more than a year.
Fed-fund futures showed traders see an 80% chance that the central bank will raise interest rates to 0.5% by September, a little higher then before the report.
Futures for December indicate a 75% expectation that rates will rise by 75 basis points, or 0.75%, by the end of the year, about the same as before the January jobs data.
