Treasuries gain

US Treasuries ended the week on a positive note after employment data disappointed high expectations, and the market could hold a firmer tone next week if a recent runup in bond yields attracts buyers to new Treasury supply. Treasury note prices gained, led by the belly of the curve, after US Labour Department data showed employers added 113,000 jobs in December, lower than some estimates that they would add as many as 200,000.
The report came after a volatile week that saw payroll expectations and bond yields leap after a much stronger employment report by ADP Employer Services on Wednesday led investors to believe that employment, which is seen as key to the economic recovery, is improving faster than expected.
The higher yields, and increased risk appetite as investors open their books for the new year, likely bode well for new Treasury supply next week. "We have backed rates up quite a bit so I think there will be some demand for the paper," said Lou Brien, market strategist at DRW Trading Group in Chicago.
Also, "there's still not the same amount of private sector paper being issued, especially on the longer end, even with the increase in the corporate supply that we've seen in recent months," he said. The Treasury will come to market with $66 billion in notes and bonds its first supply of the year. This will include $32 billion in three-year notes on Tuesday, a $21 billion reopening of 10-year notes on Wednesday and a $13 billion reopening of 30-year bonds on Thursday.
US benchmark 10-year Treasury notes, which were down 11/32 before the employment report was released, climbed 17/32, their yields easing to 3.33 percent from 3.40 percent on Thursday. The yields have risen from 2.93 percent at the beginning of December.
Five-year notes also rose 15/32 to yield 1.96 percent, down from 2.07 percent on Thursday and the 30-year bond increased 8/32, its yield easing to 4.49 percent from 4.51 percent on Thursday. Renewed concerns over the fiscal health of peripheral European nations may also add a bid to safe-haven Treasuries, with Portugal, Spain and Italy all scheduled to hold their first bond auctions of the new year next week.
A credit default swap index based on Western European sovereign debt ended on Friday at a new high of 220 basis points, hurt by the impending government debt sales and fears over the systemic risk of banks on reports that the European Union may require bank debt holders to take losses in future bank bailouts.