TREASURIES-Yields fall as jobs data disappoints
* Yields fall after payrolls, 5-yr notes lead rally * Employers add 113,000 jobs, fewer than expected * Fed buys $659 mln notes due 2024-2031 * Yellen testimony, retail sales and supply focus for next week By Karen Brettell NEW YORK, Feb 7 (Reuters) - U.S. Treasuries yields fell on Friday after employers hired far fewer workers than expected in January, suggesting a loss of momentum in the economy at the same time as the Federal Reserve pares its bond purchase program. Nonfarm payrolls rose only 113,000 in January, below economists' expectations of 185,000 jobs, and job gains for December were barely revised higher. The unemployment rate also hit a new five-year low of 6.6 percent. Five-year notes outperformed other maturities on Friday, suggesting that traders are now focused on targets the Fed has set for raising interest rates. "It shows that markets are more attuned to the forward guidance idea," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee. "There's been a decline in confidence about the near term momentum of the economy and we can see that with the rally in fives." The rapid drop in U.S. unemployment will now make re-crafting the Federal Reserve's easy-money promise a top priority for new Chair Janet Yellen, who will probably avoid tying policy to specific targets in the labor market. It was more than a year ago that the U.S. central bank first promised not to raise interest rates until joblessness fell to at least 6.5 percent, a pledge that policymakers thought would hold until at least mid-2015. Yellen is due to give her first testimony before the House Financial Services Committee on Tuesday and Thursday. Five-year notes gained 9/32 in price to yield 1.47 percent, down from 1.54 percent before the data. Seven-year notes rose 10/32 in price to yield 2.12 percent, down from 2.19 percent. Some covering of short positions by traders that had bet a stronger number would send yields higher before the data was also seen adding to Friday's rally. The report was seen as unlikely to sway the Fed from continuing to make reductions in its bond purchase program, however, with the next Fed meeting not scheduled until March. "I think you would have to have significant weakness or you would need to see this disappointing trend extend another month or two," said David Coard, head of fixed income sales and trading at Williams Capital Group in New York. The Fed last week said it would reduce its monthly bond purchases by $10 billion to $65 billion and it is expected to continue cutting in $10 billion increments. Retail sales data on Thursday will also be watched next week for signs of strength in consumer spending. The Treasury will also sell $70 billion in new coupon-bearing debt next week, including $30 billion in three-year notes, $24 billion in 10-year notes and $16 billion in 30-year bonds. The Fed bought $659 million in notes due 2024 to 2031 on Friday as part of its ongoing purchases. It will purchase between $2.25 billion and $2.75 billion in notes due 2021 to 2023 on Monday. Benchmark 10-year Treasuries were last up 7/32 in price to yield 2.68 percent, down from 2.72 percent before the data was released. Thirty-year bonds rose 2/32 in price to yield 3.67 percent, down from 3.68 percent.