Treasuries higher

US Treasuries rose on Friday, with the 30-year bond gaining more than a point, as stocks fell and a weaker-than-expected payrolls report kept inflation concerns at bay. Persistent fears over a possible default by Greece and other debt-laden European nations added to the safety bid for Treasuries and other low-risk assets, analysts said.
The gains marked the second day of a rally in US government debt, fuelled by global weakness in equities markets and a flight to quality. The gap between the yield on 10-year Treasury notes and 10-year TIPS narrowed to its smallest since mid-December. Such a narrowing usually means that investors see a declining threat of inflation, though it could also demonstrate a preference for highly liquid assets.
Anxiety over market turmoil due to sovereign fiscal woes intensified in advance of a weekend meeting of Group of Seven finance ministers and central bankers in Canada. Topics expected to be discussed include foreign exchange and financial reforms, as the global economy makes a tentative recovery. Friday's disappointing jobs data was a chilling reminder that even in the wake of robust fourth-quarter growth reported last week, the US economy has not produced enough new jobs to fuel consumer spending and sustain a recovery.
"We're probably still at least six to 12 months away before we start to see a strong hiring trend," Mueller said. The US Labour Department said employers shed 20,000 jobs last month, compared with expectations for a gain of 5,000 jobs, according to analysts polled by Reuters. The jobless rate, however, fell to 9.7 percent, compared with the 10.1 percent forecast by analysts.
The price on two-year Treasuries, the bond maturity most sensitive to market sentiment on Fed policy, rose 3/32. The yield, which moves inversely to price, was 0.76 percent, down 5 basis points from late Thursday. Benchmark 10-year notes last traded up 14/32 at 98-17/32 after hitting a session low of 97-26/32. Their yield was 3.55 percent, down from 3.61 percent late on Thursday.
The 30-year Treasury bond was up 27/32 to yield 4.50 percent. The 10-year yield is on track for a fourth straight week of declines, a stretch not seen since August to September 2009. Financial markets swung wildly in the minutes after the release of the employment report, as traders tried to interpret the conflicting data. A consensus view later emerged that the US labour market is still struggling, which will likely require the Fed to keep rates near zero so the recovery will not derail, analysts said.
Traders pared expectations that the Fed would raise interest rates at its October policy meeting, Federal fund futures implied an 82 percent chance the Fed will increase rates by a quarter percentage point in October. Traders had fully priced in such a move at the start of the week.
Prior to the payrolls data, Treasuries gained, building on Thursday's rally spurred by jitters over the fiscal problems in Greece, Portugal and Spain. In the credit default swap market, the cost to insure those countries' government debt hit record highs on Friday. While the United States is dealing with its own budget struggle, its debt is still considered among the safest investments in the world, analysts said.
"The US is further along in the recovery and is in better shape than some of these other countries," said Thomas Simons, money market economist at Jefferies & Co in New York. Stocks continued to fall on Friday, adding momentum to Treasuries' rally. The major US indexes were each down around 1 percent.