By Deborah Levine
Treasurys declined Friday after the Labor Department said the economy lost 533,000 jobs in November, the worst drop in 34 years.
Some investors and traders had been bracing for an even deeper loss, leaving Treasurys yo-yoing most of the trading session.
Benchmark 10-year note yields (UST10Y) rose 10 basis points, or 0.10%, to 2.66%. Bond yields move in the opposite direction of prices.
Two-year note yields (UST2YR) rose 14 basis points to 0.97%. Two-year note yields touched the lowest since the 1970s earlier this week.
Yields of all maturities are heading for the fifth straight weekly decline, after 10-year yields touched the lowest since the 1950s.
"Yields are super low, so there is going to be some giveback," said George Goncalves, chief Treasury and agency debt strategist at Morgan Stanley.
Economists surveyed by MarketWatch predicted 350,000 jobs would be cut. The unemployment rate rose to 6.7%, the highest since 1993.
The data add to evidence that the recession may be accelerating, and may add to concerns among bondholders that it will raise Congress's willingness to pump up the economy, including a better chance of a bailout for U.S. automakers, all of which will be financed by increased debt issuance.
"The worse the number, the more the stimulus is coming," said Andrew Brenner, co-head of structured products and emerging markets at MF Global. "Hence, Treasurys are not rallying."
Fed cuts coming
The Federal Reserve could cut its target interest rate to 0.25% by early 2009 from 1% now, taking rates to the lowest on record, said James DeMasi, fixed-income strategist at Stifel Nicolaus & Co.
U.S. central bank officials next meet on Dec. 15-16.
The payrolls report showed "a shockingly weak number," DeMasi said. "Investors and the public want to see that the government is engaged and it would show the Fed hasn't exhausted all of its tools."
"This can provide a lot more fuel for rates to move lower from here," he said.
The yield on three-month bills (UST3MO), often sought in times of extreme fear, was 0.02%, near zero.
Fed buys agency debt
Bond investors also watched Friday's initial purchase of mortgage agency debt by the Fed.
The New York Fed bought $5 billion from dealers of debt sold by the big mortgage-finance agencies Fannie Mae (FNM), Freddie Mac (FRE) and the Federal Home Loan Banks maturing in 2009 and 2010.
Dealers submitted $12.9 billion in offers to the Fed, the bank said on its Web site.
The auctions are expected to be weekly and part of a plan announced on Nov. 25 to buy $100 billion in agency debt with the goal of making mortgage loans to individuals more affordable and available. Based on the expected lifetime of the program, the Fed may purchase $2.5 billion a week, Bank of America strategists estimated in a research note Thursday.
Expectations of the purchases by the Fed have helped agency debt to rally. The spread above similar-maturity Treasurys that investors demanded to hold the agency debt has narrowed to about 1.29 percentage points, from more than 1.70 points on Nov. 20, before the Fed announced the program, according to an index compiled by Merrill Lynch.
The gap is still more than double what it was a year ago, making it harder for the mortgage agencies to finance purchases of mortgage loans.
(END) Dow Jones Newswires
December 05, 2008 16:22 ET (21:22 GMT)

Publié le 05 Décembre 2008 Copyright © 2008 Dowjones