* Yields fall to three-week lows after weak jobs report
* Short and intermediate-debt most volatile on rate
* Fed buys $1.24 bln TIPS due 2040-2043
By Karen Brettell
NEW YORK, Jan 13 U.S. Treasuries prices rose on
Monday, extending Friday's rally as investors reduced bullish
expectations for economic growth after employers added far fewer
jobs in December than traders and economists had expected.
The yield on the benchmark 10-year note fell to a three-week
low, after registering the largest one-day fall since October on
Friday on news U.S. employers added only 74,000 workers in
December, far short of the 196,000 rise forecast by analysts
polled by Reuters.
The Merrill Lynch MOVE index, which estimates
future volatility of long-term bond yields, plunged on Friday to
its lowest level in two months, falling to 61.2 from 73.7 on
The yield drop erased all losses since the Federal Reserve
said on Dec. 18 that it would reduce the size of its monthly
bond purchases, which had helped send benchmark 10-year yields
to two-and-a-half-year highs of 3.041 percent earlier this
Ahead of Friday's jobs numbers, investors had been betting
that the U.S. economy would expand at a quicker level, with
fiscal drags from the government shutdown and debt ceiling risks
now in the rear-view mirror.
"There had been some people talking up extreme growth this
year," said Michael Cloherty, head of U.S. rates strategy at RBC
Capital Markets in New York. "This (employment report)
undermined the super strong growth scenario, and now you are
left with decent growth, but not anything to speed up tightening
Three- and five-year notes, which have been the worst
performers since the Fed's December meeting, were among the best
bid after Friday's jobs data.
The lower-than-expected jobs gain is not yet seen as likely
to alter the Fed from its course of reducing bond purchases,
which were cut by $10 billion to $75 billion a month and are
seen as likely to be further pared over coming months.
But speculation over when the Fed is likely to begin raising
interest rates from rock-bottom levels is likely to keep short-
and intermediate-dated debt volatile, with expectations over
when a rate hike could begin varying from mid-2015 to 2016.
"I think that's really where the volatility is going to be
as far as those forward rate expectations are," said Tom Tucci,
head of Treasuries trading at CIBC in New York. "We had some
liquidation since the Fed meeting in the front end of the
market, and I think some of that is slowly creeping back in as
people realize the Fed's nowhere near removing that type of
Five-year notes were last up 4/32 in price to
yield 1.592 percent, down from a high of 1.755 percent on Friday
before the jobs data.
Benchmark 10-year notes rose 6/32 in price to
yield 2.831 percent, down from a high of 2.967 percent on
Friday. Thirty-year bonds increased 13/32 in price
to yield 3.7775 percent, down from Friday's high of 3.891
The president of the Atlanta Federal Reserve Bank, Dennis
Lockhart, cautiously endorsed further cuts to the stimulative
bond-buying program on Monday, warning that the labor market has
not yet healed and that there are worrisome signs of
disinflation in the economy.
The Fed bought $1.24 billion in Treasury Inflation-Protected
Securities due between 2040 and 2043 on Monday as part of its
ongoing purchase program. It will purchase between $1 billion
and $1.50 billion in bonds due from 2036 and 2043 on Tuesday.
The economic calendar was light on Monday. The next major
release is data on retail sales for December on Tuesday, which
may have been negatively impacted by weather.