TREASURIES-Yields spike on jobs data, before supply

Fri Dec 7, 2012 10:56am EST

Related Topics

* Bond yields rise after employers add more jobs than
expected
    * Fed still seen likely to announce new bond purchases next
week
    * Treasury to sell $66 bln in 3, 10, 30-year debt next week

    By Karen Brettell
    NEW YORK, Dec 7 (Reuters) - U.S. Treasuries yields spiked on
Friday after U.S. employers added more jobs than expected in
November, though a drop in the labor market participation rate
suggested the economy continues to struggle.
    Nonfarm employment increased by 146,000 jobs last month, the
Labor Department said, defying expectations of a sharp pull-back
related to superstorm Sandy.
    The jobless rate fell to 7.7 percent last month, the lowest
since December 2008. But the drop was because people gave up the
search for work, which does not bode well for the economy.
 
    "It's stronger than expected on the surface but the
unemployment rate fell for the wrong reasons," said Richard
Gilhooly, interest rate strategist at TD Securities in New York.
"The central case that the Fed is going to do QE is unchanged."
    Benchmark 10-year notes were last down 7/32 in
price to yield 1.61 percent, up from 1.59 percent late on
Thursday.
    Thirty-year bonds dropped 20/32 in price to
yield 2.81 percent, up from 2.77 percent.
    Treasuries have gained in recent sessions on expectations
the Federal Reserve will announce that it will make new bond
purchases when it meets next week.
    The Fed's current Operation Twist program, which involves
buying longer-dated debt and funding the purchases with sales of
short-dated notes, is due to expire at the end of the year.
    Traders then expect the Fed will turn to outright purchases
of Treasuries as it runs out of short-dated debt to sell.
    Fed bond purchases as part of Twist have also helped support
Treasuries this week.
    Auctions of $66 billion in new three-year, 10-year and
30-year bonds next week, however, are expected to drag on bonds
in the next few sessions.
    "In general I would imagine a general discount moving into
next week to take down the supply," said Tom Tucci, head of
Treasuries trading at CIBC in New York.
    "We traded earlier in the week higher than we should have
because the Fed was buying every day and there wasn't any supply
coming into the market," he said.
    The Treasury will sell $32 billion in three-year notes on
Tuesday, $21 billion in 10-year notes on Wednesday and $13
billion in 30-year bonds on Thursday.
    Treasuries showed little reaction to a survey showing 
Americans' outlook on the economy and their finances took a turn
for the worse in early December.
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