LONDON Jan 4 Ten-year U.S. Treasury yields
struck fresh eight-month highs on Friday after Federal Reserve
minutes flagged potential risks of ultra-loose monetary policy
and as the market awaited U.S. jobs data.
* Ten-year yields hit their highest since early
May at 1.96 percent, and last stood 3.9 basis points higher at
1.95 percent. Two-year yields were up 1.3 bps at 0.28
* Federal Reserve officials are increasingly concerned about
the potential risks of the U.S. central bank's asset purchases,
minutes showed on Thursday, prompting some in the market to
position for the possibility of an earlier-than-expected
unwinding of ultra-loose monetary policy. The Fed though looked
set to continue an open-ended stimulus programme for now.
* Against that backdrop, U.S. payrolls data due later in the
day would be of particular importance, especially since the Fed
has explicitly tied monetary policy to the unemployment rate,
* Payrolls outside the farming sector are expected to have
grown by 150,000 last month, according to a Reuters poll of
analysts. The jobless rate is seen holding steady at 7.7 percent
in December - well above the average rate over the last 60 years
of about 6 percent.
* Fed officials say they will keep interest rates near zero
until the unemployment rate falls to 6.5 percent for as long as
estimates of medium-run inflation do not exceed 2.5 percent.
* "The (Fed) minutes were much more hawkish than expected,"
Nick Stamenkovic, bond strategist at RIA Capital Markets said.
"Remember that now the time of QE (quantitative easing) is
dictated by the employment rate and inflation."
* Some in the market had raised their forecasts after an
upbeat private sector jobs report on Thursday, so the number
would have to be particularly strong to trigger a market
reaction, he said.
* "We would have to see a rise to 200,000 or above for this
Treasury market sell-off to persist and 10-year yields to
potentially test 2.00 percent," Stamenkovic said.
* However, Craig Collins, a trader at Bank of Montreal, said
the payrolls number would probably not be enough to push 10-year
yields through a key support level of 2.06 percent.
"I don't see us getting there in the near term," he said.