* Benchmark yields set for biggest weekly rise in 3 months
* Fitch downgrades debt ratings of Italy, Spain
* U.S. bond market closed Monday for U.S. Columbus Day
By Emily Flitter
NEW YORK, Oct 7 The prices of U.S. Treasury
securities fell on Friday, with the yields of 10-year notes and
30-year bonds breaking back above important boundaries, as
better-than-expected job growth in September dampened the case
for more Fed intervention.
Benchmark yields were on track for their biggest weekly
rise in three months. Ten-year yields moved back above 2
percent, and 30-year yields returned to 3 percent from historic
But volume in afternoon trading was low, as many traders
closed out early ahead of a three-day weekend for the bond
"There hasn't been the volume we would need to believe that
something's really going on," said Charles Dugan, managing
director of fixed income at Wall Street Access in New York.
"The afternoon's been incredibly quiet."
Friday's government data on payroll growth beat low
forecasts, but the jobless rate remained stuck at 9.1 percent.
"This is clearly a vote for the slow growth camp rather
than the recession camp, so there is small upward pressure on
rates," said Leslie Barbi, head of fixed income at RS
Investments in New York, which manages $30 billion in bonds.
The U.S. Labor Department said employers added 103,000 jobs
in September, well above the 60,000 predicted by analysts
polled by Reuters. The August figure was revised up to a 57,000
increase after it was initially reported at zero.
The latest data also reduced bets the U.S. Federal Reserve
will be under the gun to enact a third round of quantitative
easing to stimulate the U.S. economy.
"This report doesn't give the impetus for the more dramatic
easing from the Fed, but there are no regrets to what they have
been committed to," said Bill Irving, a portfolio manager who
oversees about $42 billion in bonds at Fidelity Investments in
In addition to keeping short-term rates near zero into
mid-2013, the Fed this week started its $400 billion "Operation
Twist" bond program aimed at lowering long-term borrowing costs
and boosting loan activity -- whose sluggish growth has worried
The U.S. bond market will be closed on Monday for the U.S.
Columbus Day holiday.
EUROPE REMAINS WILD CARD
The euro zone debt crisis remained a source of uncertainty
as policymakers struggled to develop a program to protect banks
and instill investor confidence.
Ahead of crucial summit talks on Sunday, Germany and
France, the region's two strongest members, were split over how
to strengthen shaky European banks and prepare for a possible
"Europe is a wild card," Fidelity's Irving said. "Longer
term, the end game for Europe could be messy.
"We are one headline away from the bond market rallying."
Fitch served a stark reminder about the problem plaguing
the euro zone. The rating agency downgraded the credit ratings
of Italy and Spain, the region's third and fourth biggest
The news helped knock U.S. blue-chip stocks into negative
territory and revived some safety bids for Treasuries.
The 30-year Treasury bond fell 1-12/32 in price
for a yield of 3.01 percent, up from 2.94 percent late
Thursday, but down from a session high of 3.08 percent.
Benchmark 10-year notes fell 22/32 points to
yield 2.07 percent, up from 1.99 percent at Thursday's close.
The 10-year yield rose 31 basis points this week, its largest
weekly jump since early July.
The two-year note gave up 2/32 in price for a
yield of 0.30 percent, the highest since early August.