Treasuries outlook: yields slide after US jobs report disappoints

Benchmark US Treasury debt yields fell from one-month highs on Friday after data showed the world's largest economy created fewer jobs than expected last month, reinforcing the view that the Federal Reserve would wait until the second half of next year to raise interest rates.
Still, market participants believed the one payrolls report was an anomaly and should not change the trajectory of future US monetary policy. "This means that the US economy is still in healing mode," said Putri Pasqualy, managing director and senior credit strategist at Pacific Alternative Asset Management Company (PAAMCO) in Irvine, California.
"Generally things are positive, but it's definitely too soon to pop the champagne. So the Fed is more likely to keep rates on hold for longer." PAAMCO is a global fund of hedge funds with $9.7 billion in assets under management. Yields on US 10-year notes and 30-year bonds dropped to session lows after the US nonfarm payrolls report, which showed US employment growth was the smallest in eight months. But US 30-year bond prices, which move inversely to yields, fell in afternoon trading as volume dipped, with market participants taking profits on the US jobs-fuelled rally.
Data from the US Labour Department showed that nonfarm payrolls rose just 142,000 last month, far below expectations of 225,000. The unemployment rate fell to 6.1 percent as people dropped out of the labour force. Following the jobs report, traders now attach a 68 percent probability that the first Fed rate hike would occur in July 2015, based on CME FedWatch, which tracks rate hike expectations using its fed funds futures contracts.
In late trading, US 10-year Treasury notes were flat in price to yield 2.44 percent, down from a yield of 2.45 percent late Thursday. Yields earlier hit 2.48 percent, the highest since August 6.
US 30-year Treasury bonds, meanwhile, fell 10/32 in price to yield 3.22 percent, up from 3.20 percent on Thursday. Yields climbed to 3.23 percent earlier in the session, a two-week peak. Ian Lyngen, senior government bond strategist at CRT Capital in Stamford, Connecticut said August nonfarm payrolls tend to get revised higher. He added that nine of the last 11 headline US nonfarm payroll numbers in August have been adjusted higher by an average of 144,000 jobs on the first revision. That would still be disappointing by recent standards, Lyngen said, but closer to a normal recovery level.