* U.S. payrolls gain 175,000 within market forecast
* Mortgage-related selling adds to Treasuries losses
By Richard Leong
NEW YORK, June 7 U.S. Treasury debt prices fell
on Friday in volatile trading as data that showed steady
domestic job growth in May revived bets the Federal Reserve
might pare its bond purchases later this year, spurring selling
The latest U.S. payrolls gain of 175,000, while below the
top-end of economist forecasts above 200,000, was enough to feed
speculation that Fed policymakers will scale back their $85
billion monthly purchases of Treasuries and mortgage-backed
securities later this year.
The selling in government bonds was compounded by investors
closing their Treasuries hedges on their MBS holdings.
A reduction in the central bank's third round of
quantitative easing, dubbed QE3, will likely increase mortgage
rates and slow refinancing, reducing the appeal of mortgage
bonds, analysts said.
The May jobs report "increases the risk they might consider
tapering QE later this year and this has caused bonds to sell
off a bit," said Craig Dismuke, chief economic strategist at
Vining Sparks in Memphis, Tennessee.
On the open market since the release of the payrolls report,
benchmark 10-year Treasury notes last traded 8/32
lower in price with a yield of 2.107 percent, up 2.8 basis
points from late on Thursday.
The 30-year bond was down 23/32 in price,
yielding 3.280 percent, up 4.1 basis points from Thursday's
close. The long bond was as down more than 1 point in price
earlier in reaction to the payrolls data.