Treasuries outlook: Bonds rise as Europe fears trump jobs data

US Treasury debt prices rose on Friday as overhanging worries about the eurozone debt crisis overshadowed an encouraging report on US jobs growth, rekindling safety bids for bonds ahead of key policy events in Europe next week. Speculation of a downgrade of Spain pushed aside early hopes that an improving labour market could help the United States to avert a recession, a fate many analysts reckon is inevitable for the 17-nation block.
--- Speculation over Spain downgrade rekindles safety bid
--- Worries about Europe overshadow decent US jobs data
--- Fed buys $2.1bn long bonds, sells $8.6bn shorter debt
"It's the fear about Europe and rumours circulating about a downgrade of Spain, which did not materialise," said Michael Strauss, chief investment strategist with Commonfund, in Wilton, Connecticut, which manages about $27 billion in assets. Worried investors steadily moved back into Treasuries after selling them earlier in reaction to a November payroll increase of 120,000, which came within market expectations.
The jobless rate unexpectedly fell to 8.6 percent, the lowest in 2-1/2 years. But some economists downplayed the steep drop, attributing it to discouraged people who stopped looking for jobs rather than companies adding more jobs. "The headline looks good, but when you look at the details, you shouldn't get too excited," said Aaron Kohli, interest rate strategist at BNP Paribas in New York.
Benchmark 10-year Treasury notes ended up 12/32 in price, near their session highs, with a yield 2.04 percent, down 4 basis points after nearly touching 2.17 percent, a fresh one-month high. On the week, the 10-year yield was up almost 8 basis points after falling the previous two weeks.
The 30-year bond closed 1-2/32 higher for a yield of 3.03 percent, down 5 basis points on the day. The long bond yield was nearly 11 basis points higher on the week after holding technical support about 3.14 percent for a second day. As anxiety persists over whether Europe's debt problem could spiral into a global crisis, investors and traders will monitor the results of the European Central Bank's tender on three-month dollars on Wednesday, an ECB policy meeting on Thursday and the European Summit on Friday.
"What got us here are not US issues. They are European issues," BNP's Kohli said. Traders anticipate the ECB would lower its policy rate by a quarter point to 1 percent to ease monetary conditions as the region's leaders scramble for a comprehensive solution for their fiscal woes.
On Wednesday, the ECB, US Federal Reserve and other major central banks engaged in a joint move to make dollars available at a lower cost to global banks. Euro zone finance ministers met earlier this week. Officials told Reuters they had not fixed a figure for a possible increase in funds for the IMF and that eurozone central banks - not the ECB itself - would provide resources from Europe if such an increase occurred.
The plan is still viewed by most policymakers as one to be deployed only in extremis. The eurozone wants to boost IMF resources so the fund could provide a credible backstop should the zone's third- and fourth-largest economies, Italy and Spain, be cut off from the markets and need a multi-year emergency loan program. Separately, the Federal Reserve on Friday bought $2.5 billion in long-dated bonds, followed by an $8.6 billion sale of short-dated debt from its portfolio. The two operations were part of the Fed's Operation Twist aimed to hold down long-term borrowing costs to help the economy.