NEW YORK, Nov 2 (Reuters) - U.S. government debt prices were flat to slightly higher on Friday, following Thursday’s rally, as fresh credit concerns sparked a safe-haven bid and attention turned to the government’s payroll report.
Treasuries climbed with a stronger European government debt market as credit worries intensified on talk of funding concerns at Barclays BARC.L, one of Britain's biggest banks.
Credit worries roared back with a vengeance on Thursday on after an analyst raised concerns about possible need for added capital at Citigroup C.N, the largest U.S. bank. Those fears together with disappointing earnings triggered a massive stock sell-off, sending investors scurrying to bonds.
In addition to credit worries, a weak job report will support the Treasuries rally by reinforcing the view of a U.S. economy handcuffed by the housing slump and subprime-related credit fallout. This would pressure the Fed to ease monetary policy again after trimming the key federal funds rate to 4.50 percent earlier this week, according to analysts.
“If it comes in weaker than expected, it increases the chance of another Fed rate cut,” said Doug Roberts, chief investment strategist at Channel Capital Research in Shrewsbury, New Jersey.
In early trading, U.S. interest rate futures implied that traders are pricing in a 84 percent chance of a December rate cut, up from 59 percent at Thursday’s close.
The median forecast on the government’s reading on payroll growth in October was 80,000, down from 110,000 in September, according to economists polled by Reuters. The unemployment rate likely held at 4.7 percent.
Benchmark 10-year notes US10YT=RR were flat in price to yield 4.35 percent. Ten-year yields, which move inversely to prices, posted their biggest single-day dip in nearly eight weeks on Thursday.
While the U.S. job report is the day’s premier data, the government will also release data on factory orders, which likely slipped by 0.50 percent in September.
In the cash market, two-year Treasury notes US2YT=RR were up 1/32 in price for a 3.75 percent yield versus 3.78 percent late Thursday.
Five-year debt US5YT=RR traded up 1/32 to yield 4.00 percent, down from 4.01 percent late Thursday, while the 30-year bond US30YT=RR traded up 1/32 to yield 4.64 percent, unchanged from late Thursday.
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