(Updates market action)
By Richard Leong
NEW YORK, Nov 2 (Reuters) - U.S. Treasuries prices rallied on Friday for a second day as traders’ gloomy economic outlook and expectations of more Federal Reserve rate cuts overshadowed government data showing robust job growth in October.
Surging oil prices and stock losses also spurred a flight into bonds, as traders concluded the hefty gain in payrolls and other signs of economic strength are fleeting because of the housing slump and lingering credit problems, analysts said.
“Everybody’s back to the ‘doom-and-gloom’ scenario, waiting for the next shoe to drop in credit market problems,” said Don Kowalchik, debt strategist at A.G. Edwards & Sons in St. Louis, Missouri.
With stocks sinking following Thursday’s massive sell-off, bond bulls gained the upper hand. The benchmark 10-year note yield slipped to its lowest since January 2006 and the two-year yield to its lowest since September 2005. This followed a brief spike in yields tied to the jobs data that had bolstered stock markets and initially dimmed expectations that the Fed would cut interest rates in the coming months.
U.S. employers added 166,000 jobs in October, about double analysts’ median forecasts and the most monthly hirings since May when they rose 188,000, according to the Labor Department. But the September reading was downwardly revised to a 96,000 increase from an initially reported 110,000 gain.
Another government report showed a 0.2 percent September rise in factory orders, compared with an expected 0.5 percent decline.
Friday’s surprisingly strong data came on the heels of government data showing 3.9 percent gross domestic product (GDP) growth in the third quarter and tame core inflation in September.
But some analysts argued the economy is slowing sharply in the current quarter, warranting more monetary stimulus from the Fed; they cite this week’s data indicating flagging consumer confidence and a weakening manufacturing sector.
The interest rate futures market showed traders strengthening their expectations of rate cuts after curtailing them briefly in the wake of the jobs report.
U.S. interest rate futures implied a 84 percent chance of the Fed trimming the key federal funds target rate to 4.25 percent in December after falling as low as 60 percent.
The price on benchmark 10-year notes US10YT=RR was up 16/32, erasing an earlier 16/32 drop. The 10-year yield traded at 4.29 percent, down from 4.35 percent late Thursday, after reaching an earlier high of 4.41 percent. Bond prices and yields move inversely.
Among other maturities, two-year Treasury notes US2YT=RR were up 8/32 in price for a 3.63 percent yield versus 3.78 percent late on Thursday.
Five-year debt US5YT=RR traded up 12/32 to yield 3.92 percent, down from 4.01 percent late Thursday, while the 30-year bond US30YT=RR traded up 23/32 to yield 4.60 percent, down from 4.64 percent late Thursday. (Additional reporting by Burton Frierson)