By Deborah Levine, MarketWatch NEW YORK (MarketWatch) -- Treasury prices dropped on Friday, pushing 2-year yields up by the most since July, after the Labor Department said the economy lost 11,000 jobs in November, far less than economists predicted and feeding expectations that the U.S. economy is on the mend. "It's a strong report all the way around," said Jeff Given, a portfolio manager at MFC Global Investment. "We're going to get pressure on yields." Two-year note yields (UST2YR 0.84, +0.12, +17.20%) jumped 11 basis points to 0.84%, the biggest increase in five months. A basis point is 0.01% and yields move inversely to prices. Yields on 10-year notes (UST10Y 3.49, +0.11, +3.32%) increased 11 basis points to 3.49%, the highest seen since mid-November. The payrolls report also showed unemployment rate declined to 10%, surprising analysts who expected it to stay at a 26-year high of 10.2%. See story on jobs data. "The market is getting hammered," strategists at CRT Capital Group wrote in an email. It's "a much-stronger-than-expected report with few clouds for the bond bulls to mull over." The data also caused a big shift in interest-rate futures, indicating traders raised bets that the Federal Reserve will increase its target rate by mid-2010. The August 2010 fed funds contract indicated traders expect rates to rise to 0.50% by then, compared to a 0.34% rate a week ago and from the current range of zero to 0.25%. Futures for December 2010 show traders expect the benchmark rate to be 0.94% by then, compared to 0.81% on Thursday. The Fed typically changes rates in 0.25-point increments, but futures contracts settle at the average rate fed funds traded at for the month.

Source