March 7, 2014 / 8:11 PM / 4 years ago

TREASURIES-Yields highest in six weeks after solid jobs gains

* Yields rise to highest since Jan 23 as jobs gains solid
    * Safety bid seen holdings yields artificially low
    * Treasury to sell $64 bln coupon-bearing debt next week

    By Karen Brettell
    NEW YORK, March 7 (Reuters) - U.S. Treasuries yields rose to
their highest levels in six weeks on Friday after jobs gains
were stronger than expected in February, which could ease fears
of an abrupt slowdown in economic growth and keep the Federal
Reserve on track to reduce its monetary stimulus.
    Employers added 175,000 jobs to their payrolls last month
after creating 129,000 new positions in January, the Labor
Department said on Friday. The unemployment rate, however, rose
to 6.7 percent from a five-year low of 6.6 percent.
    "It was above expectations. Equally important is that it
wasn't a repeat of another disappointing number," said Michael
Materasso, senior vice president and co-chair of the Franklin
Templeton fixed income policy committee.
    Investors have been struggling to interpret a recent spate
of weakening data, including fewer-than-expected jobs gains in
December and January, which many see as having been influenced
at least in part by bad weather.
    Materasso said volatility in data was likely to continue in
the near term, but he expects the economy to pick up in the
second half of the year, with 10-year notes yields likely rising
to around 3.50 percent by the fourth quarter, he said.
    Benchmark 10-year notes yields rose as high as
2.82 percent on Friday, the highest level since January 23 and
up from 2.73 percent before the data was released. Thirty-year
bond yields were as high as 3.745 percent, from 3.68
percent before the release.
    Gauges of investors' short-term inflation expectations also
jumped after the data showed that hourly wages grew 0.4 percent
in February, the strongest monthly rise in eight months,
suggesting some price pressure in the economy. 
    The yield spread between five-year Treasury
Inflation-Protected Securities and regular five-year Treasuries
expanded to 2.01 percent , 3 basis
points wider than late Thursday. This was widest five-year TIPS
spread since May 15, according to Tradeweb data.
    Friday's jobs figure gives some support to the Fed to
continue to reduce its monthly bond purchases as long as
economic growth remains moderate.
    "Fed tapering will likely continue full steam ahead. At the
base level it should be negative for bonds, but mildly positive
for stocks and the dollar," said Craig Dismuke, chief economic
strategist at Vining Sparks in Memphis.
    Friday's jump in yields was also seen reflecting reticence
by investors to buy bonds at recent levels. Many see rates as
having been held down by unrest in Turkey and Ukraine and not
fully reflecting the U.S. economic outlook.
    "Those lower yields were created by distress, once by the
Turkey situation at the beginning of February and once by the
Ukraine situation at the beginning of this month. Those are not
investor levels they are excess levels in the market. Now we are
moving back to fair value," said Tom Tucci, head of Treasuries
trading at CIBC in New York.
    Treasuries may also stay under pressure ahead of new supply
next week, when the government will sell $64 billion in new
coupon-bearing debt. This will include $30 billion in three-year
notes, $21 billion in 10-year notes and $13 billion in 30-year
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