Last update: Fri, 12 Feb 2016 02pm
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Prices fall on job growth, ahead of new supply

treasury-noteNEW YORK: US Treasuries fell on Friday after stronger-than-expected US job growth pushed investors into riskier assets at the expense of safe-haven US government debt.


Traders also took some profits after three straight days of gains, making room for new securities the Treasury will auction next week.


The Labor Department reported that 146,000 jobs were created in November, contradicting forecasts for a sharp pull-back related to Superstorm Sandy. But although the government also reported the jobless rate fell to 7.7 percent, the data was not enou gh to d ist urb the convi ction that the Federal Reserve would keep interest rates low.


T he decline in the unemployment rate, the lowest since December 2008, occurred b ecause p eople s topped l ooki ng for work, something that does not bode well for the economy.

"The central case that the Fed is going to do QE is unchanged," said TD Securities interest-rate strategist Richard Gilhooly in New York, referring to the Federal Reserve's unconventional method of keeping interest rates low known as quantitative easing.


Benchmark 10-year notes fell 12/32 in price to yield 1.63 percent, up from 1.59 percent late on Thursday.



Thirty-year bonds fell 29/32 in price, their yields rising to 2.82 percent from 2.77 percent.


Treasuries prices have risen in recent sessions on expectations that at the close of the Fed's two-day policy meeting on Wednesday it will announce a series of new bond purchases.


The Fed's current "Operation Twist" program, under which it buys longer-dated debt and funds the purchases with sales of short-dated notes, is set to expire at the end of the year. Traders expect the Fed will then turn to outright purchases of Treasuries as it runs out of short-dated debt to sell.


"Everyone expects the Fed to continue with their easing, primarily with mortgage buying. You also have the Treasury auctions next week. So you're setting up for the auctions amid expectations that the Fed's easing will continue," said Matthew Duch, portfolio manager at Bethesda, Maryland-based Calvert Investments, with $12 billion in assets under management.


Auctions of $66 billion in new three-, 10- and 30-year bonds next week could weigh on bond prices in the next few sessions.


"In general I would imagine a general discount moving into next week to take down the supply," said Tom Tucci, head of Treasuries trading at CIBC in New York.


The Treasury will sell $32 billion in three-year notes on Tuesday, $21 billion in 10-year notes on Wednesday and $13 billion in 30-year bonds on Thursday.


Treasuries showed little reaction to a survey released on Friday showing Americans' outlook on the economy and their finances took a turn for the worse in early December.


In the coming week, "the market will also focus on what the Fed says about how it will communicate its intentions in the future, on whether it will set targets for unemployment and inflation," Duch said.


Copyright Reuters, 2012