Treasuries lower

A poor jobs report sent Treasury yields lower on Friday, but the coming week could test the rally's strength, as the Treasury Department prepares to auction $66 billion in debt, calling more attention to the approaching legal debt ceiling. The Labour Department's May non-farm payrolls report showed a far weaker employment picture than economists had expected.
Treasury prices rallied after the report came out and the 10-year yield dipped below the psychologically significant 3 percent level. But the day's lowest yields didn't stick; news that Greece would very likely get a cash infusion to help deal with its debt crisis pushed 10s back above 3 percent. They settled just under that mark at the end of the day. Traders said they could eventually go lower, but with few economic data points scheduled for the coming week, the focus will be on the Treasury's three-year note, 10-year note and 30-year bond auctions, and the supply could weigh on prices.
"Certainly I think the three auctions will garner a lot of attention in the market and the questions will be do the remaining shorts in the market use this opportunity to cover some of their positions," said Rich Bryant, head of Treasury trading at MF Global in New York.
"You could see some demand from the bank portfolio community who, I think, still have a need for Treasuries on the balance sheet, so we'll be looking at overseas participation; we'll be looking at participation from professional traders that have been trading from the short side and also bank participation." Overall, the bond market will likely need more such news to bring yields even lower, said Chuck Retzky, director of futures sales at Mizuho Securities USA in Chicago.
"We have confirmation of a weak Q2. Now people are taking chips off the table," Retzky said, adding that next week's wave of government and corporate debt supply might impede the Treasuries market from rallying further. Treasury prices rallied after disappointing US labour market data, which was the latest in a string of reports signalling a decisive slowdown in the economy as a result of high oil prices and a fading boost from the Fed's monetary stimulus.
"The (payroll) numbers were weak, even relative to the lowered expectations. I think yields will stay down here," said Kathy Jones, fixed income strategist with Charles Schwab in New York that has $1.65 trillion in client assets. The US Labour Department said US employers hired 54,000 workers in May, well below economists' forecast of a 150,000 increase. This was the weakest monthly job growth since September 2010.
If economic data continue to miss forecasts, the 10-year yield could fall to 2.65 percent, Jones said. MF Global's Bryant was more circumspect. "We traded 2.94 percent on Wednesday and we traded 2.95 percent this morning but we did see the market back off from that level," he said.
"For now that seems to be a resistance point but that's not to say that things can't change next week." The post-payroll rally faded after news that debt-laden Greece is closer to getting fresh aid from the European Union and International Monetary Fund, traders said. Concerns over Washington's struggle to reach a deficit reduction deal and to raise the $14.3 trillion debt ceiling also stoked some bond selling before the weekend, they said.
The price on benchmark 10-year notes last traded up 10/32, with their yield at 2.993 percent, down from 3.03 percent late Thursday. The 30-year bond finished in positive territory after another volatile session. It was last up 11/32 to yield 4.23 percent, down 2 basis points on the day.