* Slowest job growth in nine months casts shadow on U.S.
* Fed accommodation expected to continue
By Ellen Freilich
NEW YORK, April 5 U.S. Treasuries rallied on
Friday, letting yields fall to their lowest levels of the year,
after the government's report that U.S. employment grew at its
slowest pace in nine months raised concern that U.S. growth
could slow in coming months.
The slower job growth surprised investors and persuaded them
that the Federal Reserve would keep buying bonds to try to keep
the economy on a growth path.
"Today's report pushes out the date at which the Federal
Reserve may reduce its purchases of securities," said Brian
Jacobsen, chief portfolio strategist, Investments Group, at
Wells Fargo Funds Management in Menomonee Falls, Wisconsin.
The U.S. Labor Department said the U.S. economy produced
just 88,000 new jobs last month. The unemployment rate edged
lower, but that was mainly due to people leaving the workforce.
The jobs news, combined with weaker global equity markets,
the Bank of Japan's recently announced monetary stimulus
program, and euro zone financial strains, encouraged investors
to buy safe-haven bonds.
"The economic data this week, ending with today's employment
report, confirmed softness in the labor market," said Tanweer
Akram, senior economist, global rates, fixed income at ING
Investment Management in Atlanta.
That, with resurgent global financial strains, supports the
view of mainstream Federal Reserve policymakers that interest
rates need to stay low for a long time and quantitative easing
should be open-ended until a change is warranted, he said.
As a result, "the market has been rallying and rates are
much lower than what would have been expected," Akram said.
Benchmark 10-year Treasury notes rose 22/32,
letting their yields fall to 1.69 percent from 1.76 percent late
Thursday and from 2.06 percent less than four weeks ago.
The price of the 30-year Treasury bond rose more
than two points; its yield fell to 2.86 percent, from 2.99
percent late on Thursday and 3.26 percent nearly four weeks ago.
"Yields are returning to the lower levels where they should
be," said Robert Tipp, chief investment strategist at Prudential
Fixed Income in Newark, New Jersey, with more than $1 trillion
in assets under management.
Ten-year Treasury yields slipped below 2 percent in
mid-March and have traded there ever since.
But Friday's U.S. payrolls report was the impetus for yields
to go even lower, said Daniel Heckman, senior fixed-income
strategist at U.S. Bank Wealth Management in Minneapolis.
"The report was a real punch in the stomach to the idea that
the labor market was gaining traction," he said. "We saw some
very disturbing data today."
Still, Heckman said, near-term yields have fallen as low as
they will go.
"The bond market has gotten a little bit ahead of itself,"
he said. "I would not be chasing it at this point. Yields have
built in quite a bit of economic weakness here."
A test of the market's appetite for Treasuries at these new
high prices and low yields comes next week when the Treasury
will sell three-, 10- and 30-year government debt.
"If demand at the Treasury auctions is weak, that could show
investors have gotten a little too pessimistic on the economy
and too bullish on the bond market," he said.