U.S. debt on track for weekly rally amid uncertain outlook
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices turned lower on Friday, pushing yields up modestly, after the government's monthly labor report failed to confirm worst fears about the U.S. economy's risk of falling back into a recession.
"We were priced for a horrible number and just got a bad number," said Don Ellenberger, portfolio manager at Federated Investors.
Yields on 10-year notes (UST10Y 2.96, +0.01, +0.34%) , which move inversely to prices, rose 1 basis point to 2.96%. A basis point is 0.01%.
Yields on the benchmark securities are near the lowest since April 2009.
Yields on 2-year notes (UST2YR 0.63, -.00, -0.63%) declined 1 basis point to 0.63%, after touching an all-time low earlier this week.
The Labor Department said the economy shed 125,000 jobs in June, with the private sector adding 83,000 positions to payrolls.
Economists surveyed by MarketWatch predicted private employment would rise 115,000, while the federal government cut about 230,000 temporary Census takers. Read more on nonfarm payrolls and the unemployment rate for June.
The U.S. unemployment rate dropped to 9.5% from 9.7% in May, but the government noted a sharp decline in the size of the workforce last month.
"The Treasury market was prices for double-dip numbers and the numbers don't confirm a double-dip scenario, so it's not going to cause the Treasury market to rally," said Ellenberger, co-head of Federated's government mortgage group, which manages about $8 billion in assets.
Key lows this week
Earlier this week, 2-year yields dropped to the lowest on record, falling to 0.59%, breaking through a level that has held since December 2008 -- the last time the Federal Reserve lowered interest rates and near the depths of the financial-system meltdown.
Yields on the short-term securities are on pace for a third weekly decline.
Yields on 10-year notes touched 2.92% on Wednesday, the lowest in 14 months. They're down this week by the most since late May.
Data earlier in the week showed consumer confidence and manufacturing activity unexpectedly fell, while initial claims for jobless benefits ticked higher in the latest week, raising fears that the economy wasn't improving as much as previously projected and generally supporting U.S. debt prices. See Thursday's bond column.
Thirty-year bond yields (UST30Y 3.92, +0.02, +0.51%) broke below 4% for the first time since October, trading at 3.91% on Friday and also down for the week by the most since late May.
"Tremors out of Europe, especially surrounding fiscal issues in Greece, Spain and others, have caused something of a flight to quality bid," said Scot Johnson, senior client portfolio manager for Invesco Fixed Income. "The U.S. has its own fiscal issues but the problems are further down the road so Treasurys are perceived as the safe haven for today."
"The vast uncertainty that is present in the marketplace today tells you that yields are probably going to stay pretty low for a good while," at least for the next quarter, Johnson said.
