Treasuries Pull Back Sharply Following Upbeat Jobs Data

(RTTNews) - Treasuries showed a substantial move to the downside during trading on Friday, as traders reacted to the Labor Department's monthly jobs report.

Bond prices fell sharply in early trading and remained stuck in the red throughout the session. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, jumped by 12.8 basis points to 2.24 percent.

With the notable increase on the day, the ten-year yield surged up to its highest closing level in well over two months.

The sell-off by treasuries came following the release of a Labor Department report showing that stronger than expected job growth pushed the unemployment rate down to a six-year low in February.

The data paints an upbeat picture regarding the labor market and subsequently added to concerns about the Federal Reserve raising interest rates in the near future.

The report said non-farm payroll employment jumped by 295,000 jobs in February, while economists had expected an increase of about 230,000 jobs.

The unemployment rate subsequently fell to 5.5 percent in February from 5.7 percent in January, coming in below economist estimates for a rate of 5.6 percent.

With the bigger than expected decrease, the unemployment rate dropped to its lowest level since hitting 5.4 percent in May of 2008.

Paul Dales, Senior U.S. Economist at Capital Economics, said the drop by the unemployment rate leaves it at the top end of the Fed's 5.2 to 5.5 percent estimate of the natural rate.

"In theory, when the unemployment rate is at the natural rate, interest rates should be at the neutral rate of between 3% and 4%," Dales said. "As such, this is quite a symbolic change that increases the pressure on the Fed to hike rates in June."

The jobs report largely overshadowed a separate report from the Commerce Department showing that the U.S. trade deficit narrowed in line with economist estimates in the month of January.

Following the slew of U.S. economic data released over the past week, the economic calendar for next week is relatively quiet.

Nonetheless, traders are likely to keep a close eye on reports on retail sales, wholesale inflation, and weekly jobless claims.

Bond trading could also be impacted by reaction to the Treasury Department's auctions of three-year and ten-year notes and thirty-year bonds.

The Treasury is due to sell $24 billion worth of three-year notes next Tuesday, $21 billion worth of ten-year notes next Wednesday and $13 billion worth of thirty-year bonds next Thursday.