US Treasuries prices rallied on Friday as moderate US job growth in February, stock market losses and higher oil prices whetted investors' appetite for safe-haven government debt ahead of the weekend. More gradual US employment growth in February than some in the market had expected helped Treasuries reverse some of the previous day's losses incurred on views that job growth might be higher than forecast.
Traders cited buying from Middle East investors amid increased strife in oil-producing Libya as Libyan security forces fired on protesters in Tripoli and clashed with rebels near the major oil terminal of Ras Lanuf. "A lot of the day's advance was short-covering as people realised the employment numbers were not as bad as expected," said John Spinello, senior vice president and chief fixed-income technical strategist at Jefferies in New York.
"A 3.50 percent 10-year yield is not a great buy with supply coming, but there are people who feel the economy will struggle with high gas prices so that's one of the variables in the equation." Benchmark 10-year notes rose 18/32, their yields easing to 3.49 percent from 3.56 percent on Thursday. Two major stock indexes each fell more than 1 percent as US crude oil prices jumped to their highest since September 2008.
Markets are weighing the threat that Libya's oil sector could become a target in its revolt, as well as the chance that unrest could spread and hurt supplies from other big producers, such as Opec's leading oil producer, Saudi Arabia. "Stocks are giving up some of yesterday's gains and bonds are coming back from yesterday's sell-off, leaving us smack in the middle of the range," said Steve Van Order, fixed income strategist at Bethesda, Md.-based Calvert Asset Management, with $14.5 billion in assets under management.
The benchmark 10-year bond yield had moved as high as 3.74 percent before a safety bid related to Middle East turmoil sent it back down to 3.40 percent, Van Order observed. Two conflicting scenarios are buffeting bonds, he said. "We're getting support from the idea that higher oil prices could weaken the economy and so we're watching headlines from Libya; while on the other hand, we've gotten hurt by better economic data and hawkish talk from the ECB," he said, referring to European Central Bank President Jean-Claude Trichet.
On Friday, Labour Department data showed that US employers hired more workers in February than in any month since May last year and the unemployment rate fell to 8.9 percent, a sign the recovery has become self-sustaining. Prices of five-year notes rose 14/32, their yields easing to 2.19 percent from 2.29 percent on Thursday, while prices of seven-year notes climbed 18/32, their yields easing to 2.90 percent from 2.99 percent.
Prices of two-year notes rose 4/32, their yields easing to 0.70 percent from at 0.77 percent on Thursday. Trade was initially volatile after the government said 192,000 jobs were added to US payrolls in February while the unemployment rate fell to 8.9 percent. The Treasury will sell $32 billion in three-year notes, $21 billion in 9-year 11-month notes and $13 billion in 29-year 11-month bonds on Tuesday, Wednesday and Thursday.
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