* Benchmark yields book biggest one-day fall in over two
* U.S. December payroll growth slowest in three years
* Bond market rise tempered by jobless rate drop, weather
* Fed's Bullard, Lacker see bond purchase tapering to
By Richard Leong
NEW YORK, Jan 10 U.S. Treasuries prices jumped
on Friday, with benchmark yields posting their biggest one-day
drop since October, as government data showed the weakest
monthly job growth in three years in December, undermining
investors' confidence in the economy.
The surprise setback in labor conditions did not alter
expectations the Federal Reserve will wind down its third round
of bond-purchase stimulus by the end of the year but the weak
hiring figures raised bets the U.S. central bank would be in no
hurry to raise short-term interest rates, traders said.
"We are seeing a solid rally across maturities because of
the weak payroll print," said Jake Lowery, portfolio manager at
ING U.S. Investment Management in Atlanta, which oversees $190
billion in assets. "But one month of weak data is not enough to
throw the Fed off its measured pace of tapering."
The bond market jumped on the news that U.S. employers added
only 74,000 workers in December, far short of the 196,000 rise
forecast by analysts polled by Reuters.
Including the tepid December figure, the economy still
created about 2.2 million jobs in 2013.
"It gets you to pause a bit," said Russ Koesterich, global
chief investment strategist at BlackRock in San Francisco, which
manages $4.1 trillion. "This fits into the patterns we have seen
in the past. This is a 'job-lite' recovery."
The market rise was mitigated by a surprise drop in the
unemployment rate to 6.7 percent, which was the lowest since
October 2008, although the drop stemmed partly from people
leaving the workforce. The latest payrolls report also showed
more than a quarter million workers stayed home due to rough
winter weather across much of the country last month.
St. Louis Fed President James Bullard said on Friday in the
wake of the poor December payroll reading that he still expects
the Fed to further reduce its bond purchases, while Richmond Fed
chief Jeffrey Lacker said another $10 billion monthly cut will
likely be considered at the Fed's Jan. 28-29 policy meeting.
On Dec. 18, Fed policymakers decided to reduce monthly
purchases of Treasuries and mortgage-backed securities by $10
billion to $75 billion starting in January.
Earlier Friday, the Fed bought $3.30 billion in Treasuries
due in 2020, completing this week's purchases of government debt
for its third round of quantitative easing to keep interest
rates low and stimulate the economy.
In other Fed news, President Barack Obama nominated former
Bank of Israel Governor Stanley Fischer as vice chairman of the
Fed. If approved, he would succeed Janet Yellen, who will step
into the Fed's top post in February.
JOBS DATA COOLS RATE-HIKE WORRIES
Benchmark 10-year Treasury notes last traded
21/32 higher in price with a yield of 2.886 percent, down 8
basis points from late on Thursday. The 10-year yield fell to a
session low of 2.871 percent, the lowest in over three weeks
after hitting a near 2-1/2-year high of 3.041 percent last week.
"Some investors see value with the 10-year yield at 3
percent," BlackRock's Koesterich said.
The 30-year bond more than 1 point, ending with
a yield of 3.799 percent, down 7 basis points on the day.
Medium-term Treasuries fared the best among all maturities,
rebounding from recent weakness on fears the Fed might speed up
its pace of cutting bond purchases and perhaps raising
short-term rates before late 2015, when most Wall Street
economists forecast the Fed's first rate hike to occur.
Five-year notes last traded up 17/32 in price with a yield
of 1.633 percent, down 11 basis points from late on Thursday.
The five-year yield was on track for its biggest one-day decline
in nearly four months, according to Reuters data.
Short-term U.S. interest rates futures jumped as traders
scaled back their expectations of a Fed rate hike in the first
half of 2015. They implied traders now assign a 51 percent
chance of a rate hike at the Fed's April 2015 meeting, less than
the 62 percent seen on Thursday before the jobs report,
according to CME FedWatch, which compiles rate expectations
based on its federal funds futures contracts.