TREASURIES-Lower prices draw buyers after neutral US jobs report

Fri Jan 4, 2013 10:00am EST

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By Ellen Freilich

NEW YORK Jan 4 (Reuters) - U.S. Treasuries reduced early losses on Friday after the U.S. employment report for December appeared fairly neutral for bonds, encouraging some buyers to take advantage of the past month's price cuts and yield increases.

Ten-year Treasury yields have risen to 1.92 percent from 1.59 percent in early December.

"We continue to like buying this zone," said David Ader, head of government bond strategy at CRT Capital Group in Stamford, Connecticut.

The government's December U.S. employment report showed U.S. job growth cooled to 155,000 jobs in December, from upwardly revised job growth of 161,000 in November, putting the unemployment rate at 7.8 percent, unchanged from the upwardly revised November level.

The benchmark 10-year Treasury note, down 10/32 before the report was released, trimmed its loss to 5/32, but later expanded it again to 10/32.

Buyers then entered the market again, letting the 10-year note trim its loss to 3/32 and leaving its yield at 1.93 percent, up slightly from 1.92 percent late on Thursday.

While December job growth was a little more lackluster than November's growth, upward revisions to previous job reports and small gains in the length of the workweek and average hourly earnings were positive for the economy and slightly negative for bonds, Ader said.

An aspect of the employment report that was "a tad supportive" for bonds was that the number of government jobs continued to shrink, he said.

After bond prices fell and yields rose on the release on Thursday of Federal Open Market Committee minutes that sounded more hawkish than anticipated, this employment report "should be a little soothing," Ader said.

Analysts said the report buttressed expectations that the economy would grow about 2 percent this year, an expansion unlikely to push down unemployment quickly or make the U.S. Federal Reserve alter its stimulative monetary policy.

The Fed has kept interest rates near zero since 2008, and in September promised open-ended bond purchases to support lending further. On Thursday, however, minutes from the Fed's December policy review pointed to rising concerns over how the asset purchases will affect financial markets.

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