US Treasuries fall

US government bond prices plunged on Friday in an abbreviated session, pushing benchmark yields to their highest levels in over seven weeks, after a stronger-than-expected reading on March non-farm payrolls.
The strong payrolls number suggested to investors that economic growth may not be slowing as much as originally thought, and pushed back expectations the Federal Reserve will move to cut official interest rates any time soon.
The government said 180,000 US non-farm-sector jobs were added in March, topping the consensus Wall Street expectation of adding 120,000, and above the upwardly revised February gain of 113,000.
The benchmark 10-year note traded 18/32 lower in price for a yield of 4.76 percent compared with 4.68 late on Thursday. Benchmark yields, which move inversely to prices, reached their strongest since mid-February. "It is a strong report with upward revisions," said David Ader, head of government bond strategy at RBS Greenwich Capital in Greenwich, Connecticut.
"This not going to cause the bond market any soothing or comfort over the course of April, and we have broken down through the price range that we had established," Ader said. Fed fund futures also fell after the payrolls number, with the implied chances of a June rate cut from the Federal Reserve easing to 10 percent from 20 percent before the release of the payrolls data.
Two-year notes traded 7/32 lower in price for a yield of 4.75 percent from 4.63 percent late on Thursday. "The figures inflicted a sharp blow to the view that the economy deteriorated in the aftermath of the February 27 stock market adjustment and emergence of subprime mortgage sector woes," said Michael Englund, chief economist at Action Economics in Boulder, Colorado.
The Securities Industry and Financial Markets Association recommended US bond markets close at 11 am EDT (1500 GMT) for the Good Friday holiday. While bond prices fell, the yield curve flattened markedly to near a state of inversion. The spread between two-year yields and 10-year yields narrowed to about one basis point on Friday from about five basis points on Thursday.
When longer-dated yields fall below their shorter-dated counterparts the yield curve is said to be "inverted," a state which some economists believe portends economic recession.
Longer-dated yields only recently rose above their shorter-dated counterparts, in March, after several months of inversion. Five year-notes traded 14/32 lower in price for a yield of 4.67 percent from 4.57 percent late on Thursday, while thirty-year bonds traded 23/32 lower for a yield of 4.93 percent from 4.88 percent.