US Treasuries prices fell on Friday after stronger-than-forecast October job growth revised expectations about how soon the Federal Reserve could start to scale back its bond-purchase program aimed at stimulating the economy. Employers added 204,000 jobs to payrolls, the Labour Department said, topping economists' forecasts for 125,000 new jobs. Job numbers from August and September were also revised upward.
Ten-year benchmark note prices slid 1-10/32 while yields shot up to 2.75 percent from 2.60 percent on the outlook that the Fed could trim bond purchases sooner than March 2014. "The market is transfixed by tapering," said Steve Van Order, fixed income strategist at Bethesda, Maryland-based Calvert Investments. "Earlier in the week bonds did better because Fed officials seemed to be saying the Fed was in no rush to taper. Now, after this jobs report, the market reversed itself."
Some economists called the data mixed because while the job growth was surprisingly strong, the unemployment rate still rose, to 7.3 percent. A sharp drop in the portion of people participating in the labour market "could still raise some eyebrows at the Fed," said Thomas Costerg, US economist at Standard Chartered in New York. More people dropped out of the labour force in October, leaving the participation rate at 62.8 percent, the lowest level since March 1978.
Other economists found the data's stronger features convincing. Citigroup's Robert DiClemente called the report "unambiguously solid." Even so, DiClemente said, there could be "hurdles to tapering QE before next March as officials await broader evidence of the recovery's strength, including housing activity, and also the safe resolution of fiscal negotiations."
A Reuters poll showed more US primary dealers looking for a scaling back in the Fed's stimulus program before March after the jobs report and recent data from purchasing managers surveys. Just two weeks ago, a similar poll found the majority of primary dealers - the large financial institutions that do business directly with the Fed - thought the central bank would not start to cut its bond purchases before March 2014.
In the poll released Friday, economists at several primary dealers thought risks were now more skewed toward the Fed reducing its purchases in January 2014. The Fed has been buying $85 billion per month in Treasuries and mortgage-backed securities. Of the 16 primary dealers who responded to the poll, seven expected the Fed to begin to reduce purchases in March. In a similar poll on October 22, nine of 15 dealers said they expected the Fed to begin tapering its purchases in March.
The nonfarm payrolls number is key for the Treasuries market because Fed policymakers have emphasised they will continue the economic stimulus program until they see data reflecting a stronger, more self-sustaining economy, an outcome that demands a healthy job market. Speculation earlier this year that the Fed was eyeing the exit door drove yields up more than 130 basis points from May to September. Yields have eased slightly since then but are still about 100 basis points above their May levels. Prices for the 30-year bond fell 1-14/32. Their yields rose to 3.85 percent from 3.71 percent late on Thursday.