TREASURIES-Prices sink on U.S. hiring surge in February; yields jump

Fri Mar 8, 2013 10:17am EST

Related Topics

* 10-year yields at highest since April
    * 236,000 jobs added to nonfarm payrolls last month
    * Unemployment rate falls to a four year-low

    By Luciana Lopez
    NEW YORK, March 8 (Reuters) - Prices for U.S. Treasuries
sank on Friday and benchmark yields touched an 11-month high as
data showed U.S. payrolls surged in February, far above
expectations.
    Nonfarm payrolls jumped by 236,000 jobs last month, the
Labor Department said on Friday, vaulting economists'
expectations for a gain of 160,000. 
    "There's a lot to like in this report," said Terry Sheehan,
an economic analyst with Stone & McCarthy Research Associates in
Princeton, New Jersey. "The main trends are all moving in the
right direction."
    Prices for benchmark 10-year notes dropped 17/32
to yield 2.054 percent, compared with 1.9965 percent late on
Thursday. The note hit its highest yield since April.
    The 30-year bond fell 30/32 to yield 3.250
percent, compared with 3.2016 late on Thursday. The bonds
dropped more than a point shortly after the data.
    "The near-term market reaction will be to sell the back end
of the yield curve," said Rob Carnell of ING Bank.
    "With the Fed committed to keeping rates on hold for the
foreseeable future, the front end of the yield curve is locked
down, leaving all pressure on Treasuries to come in the back end
of the curve. Steepening for now seems probable."
    Traders of short-term U.S. interest rates brought forward
their expectations for the timing of the Federal Reserve's first
rate hike into late 2014 after the data. 
    Yields have pushed steadily higher this week as early data
pointed to a bigger rise in payrolls than previously expected
and thus a swifter healing of the labor market.
    Still, the nonfarm payrolls data beat even revised
expectations.
  
   But the unemployment rate, while falling to 7.7 percent from
7.9 percent, remains far above the 6.5 percent the Federal
Reserve wants to see, which means the Fed is unlikely to clamp
down on rates anytime soon.
    Analysts said the Fed is looking for steady improvement over
a longer term, as well.
    "No, it's not anything that goes to change perspectives, and
particularly the Fed's perspective," said Ellen Zentner, senior
U.S. economist with Nomura Securities in New York.
    "The average over the past two months is marginally better
than the 12-month moving average, but not enough to move the
needle."    
    That likely means continued asset-buying by the U.S. central
bank. The Fed has been buying $85 billion per month of
mortgage-backed securities and Treasuries through the year.
    Revisions lowering the January jobs figures also took some
of the shine off the February data.
    "This leaves the three-month average rate of payroll growth
at 191k, slightly below the 200k in the January report, which
leads us to temper our view of labor market strength based on
the February data alone," said Michael Gapen of Barclays.
FILED UNDER: