* Yields have biggest one-day jump since January
* February, March payroll growth revised up
* Decline in unemployment rate not due to workers dropping
By Ellen Freilich
NEW YORK, May 3 U.S. Treasuries prices fell on
Friday and yields made their biggest one-day jump since January
after the government reported job growth that topped the
market's subdued forecasts.
The unemployment rate fell to a four-year low of 7.5 percent
in April, the U.S. Labor Department said, while nonfarm payrolls
added 165,000 jobs last month.
Economists polled by Reuters had expected April payrolls to
rise by 145,000 and the unemployment rate to hold steady at 7.6
The healthier-than-expected job picture caused the U.S.
30-year Treasury bond, the maturity that most
reflects the long-term inflation outlook, to fall more than 2
points. Its yield rose to 2.94 percent from 2.83 percent on
The benchmark 10-year Treasury note fell a
point, its yield rising to 1.74 percent from 1.63 percent late
on Thursday, the biggest single-day jump since Jan. 25.
Upward revisions in nonfarm payroll growth to 138,000 for
March - 50,000 more jobs than first reported - and an upwardly
revised February gain of 332,000, the largest increase since May
2010, strengthened the impression of steady job growth.
In addition, the drop in the unemployment rate last month
reflected an increase in employment, rather than people leaving
the work force, the Labor Department said.
"The market got it wrong once again," said Payden & Rygel
senior economist Jeffrey Cleveland. "Everyone was set up for a
more gloomy employment report given the recent run of economic
data and the chatter about the Fed possibly increasing the size
of their purchases," he said, referring to the Fed's recent
statement that it could decrease or increase the size of its
large-scale asset purchase program as needed.
"Instead, the data was a little better than expected,"
Cleveland said. "It ebbs and flows, but we have had moderate
employment growth and this report was in line with that."
The better-than-expected April payroll growth and upward
revisions to growth in February and March - plus the employment
growth seen in the household survey that drove the unemployment
rate down 0.1 point to 7.5 percent - "troubled" the bond market
and sent yields up toward the higher end of their "micro-range,"
said William O'Donnell, RBS Securities head Treasury strategist
in Stamford, Connecticut.
Meanwhile, the timely Institute for Supply Management's
non-manufacturing index came in a little weaker than expected,
but still reflected expanding activity in April.
Steve Blitz, chief economist at ITG Investment Research in
New York, said market sentiment was much more volatile than the
actual underlying economic fundamentals.
"There's a tendency for market sentiment to swing from too
euphoric to too pessimistic," he said. "It's like following a
.500 baseball team. If they win seven out of 10 games, it looks
like they are going to the World Series and when they lose seven
out of 10 games it looks as if they will never win another game.
When, in reality, when you look at the whole season, they are
winning half the time and losing half the time. I see nothing in
the data we look at to indicate the economy is about to break
out in either direction - either faster or slower."
April's employment data also cooled, at least for now, talk
of the Fed increasing the size of its large-scale asset buying
program, known as quantitative easing, an unconventional method
of providing monetary accommodation when short-term interest
rates have already been cut to near zero.
"That discussion about the Fed increasing its purchases has
to be shelved for now," Cleveland said.
The data pulled yields up from 4-1/2-month lows, but the
30-year Treasury yield remained below 3 percent and the 10-year
yield well below 2 percent.
"There's no inflationary pressure," Cleveland said. "You'd
need to see above-trend growth and a breakout in inflation to
send yields much higher. Payroll growth would have to accelerate
to above 200,000 a month. Job growth now is pretty much the same
as it was a year ago relative to the working age population."