* Bonds slip as stocks climb
* Benchmark 10-year yield edges over 2 percent
* Bonds fall, stocks rise on job growth, manufacturing gains
By Ellen Freilich
NEW YORK, Feb 1 U.S. Treasuries ended lower on
Friday as a stock market rally on job growth and improved
manufacturing hurt demand for safe-haven U.S. government debt.
U.S. stocks reached five-year highs after U.S. employment
data - including upward revisions to job growth in November and
December - and a stronger-than-expected Institute for Supply
Management manufacturing survey sent the Dow industrials to
14,000 for the first time since October 2007 and the S&P to its
highest point since December of that year.
The strong manufacturing report had the opposite impact on
bonds, which tend to do less well when stronger growth raises
the possibility of higher inflation, which erodes the purchasing
power of fixed-income instruments.
"The ISM manufacturing report was very strong relative to
expectations and U.S. Treasuries sold off on it," said Eric
Stein, vice president and portfolio manager at Boston-based
Eaton Vance Investment Managers.
The persistent rise in stocks, with major stock indexes each
up more than 1 percent, demonstrated investors' increased
tolerance for risk, hurting safe-haven U.S. government debt.
Analysts said cash was coming off the sidelines and moving
into equities. But they said demand for bonds would remain.
For one thing, the slightly higher unemployment rate in
January suggested the Federal Reserve would not back off from
its latest round of quantitative easing.
"When the Fed sees 7.9 percent unemployment, it's not going
to lift its foot from the accelerator, and with their $85
billion purchases a month of Treasuries and mortgages, the Fed
is a huge influence on the bond market," said Daniel Heckman,
senior fixed income strategist at U.S. Bank Wealth Management in
Minneapolis. "That will prevent any rapid increase in interest
Rob Carnell, an economist with ING Bank, said the rise in
unemployment vindicated for now the Fed's expansion of
quantitative easing in December and should help limit the
testing of 10-year yields seen over recent weeks.
Five- and seven-year debt outperformed as investors
anticipated more Fed purchases in these sectors.
In December, the Fed announced a new bond-buying program
that also shifted more of its purchases into intermediate
Treasuries, helping to push those yields down at year-end.
The March 2017 Eurodollar contract fell 3 basis
points to 98.055.
The benchmark 10-year Treasury note last traded
down 13/32 in price, its yield rising to 2.04 percent from 1.99
percent on Thursday.
Ten-year notes have been testing 2 percent all week, mainly
on suggestions the euro zone debt crisis may be easing.
"The European Central Bank and European governments have
shown a willingness to backstop the financial market and
financial institutions in Europe, so with every day that goes
by, people like myself are more comfortable with the major
European banks surviving/thriving over the next couple of years
as opposed to worrying about Greece and having those kinds of
conversations," said Tom Nelson, chief investment officer at New
York-based Reich & Tang.
The 30-year bond fell 1-2/32 in price, allowing
its yield to rise to 3.23 percent from 3.17 percent late on