Treasuries Close Modestly Lower After Seeing Early Strength

(RTTNews) - While treasuries initially benefited from the release of a disappointing U.S. jobs report, buying interest waned over the course of the morning.

Bond prices subsequently pulled back well off their early highs, sliding into negative territory late in the trading day. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by 1.3 basis points to 2.461 percent.

The early strength among treasuries came following the release of a Labor Department report showing much weaker than expected U.S job growth in the month of August.

The Labor Department said non-farm payroll employment increased by 142,000 jobs in August compared to economist estimates for the addition of about 225,000 jobs.

While the report also said employment climbed by an upwardly revised 212,000 jobs in July, employment rose by a downwardly revised 267,000 jobs in June, reflecting a net downward revision of 28,000 jobs.

Buying interest was relatively subdued, however, as analysts suggested the weak job growth is probably just an isolated blip.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said, "Other indicators suggest that labor market conditions are still strengthening and the latest round of survey evidence indicates that economic activity is soaring."

"Accordingly, this doesn't change our view that the Fed will begin to raise rates in March next year, a little earlier than many others expect," he added.

A modest drop by the unemployment rate to 6.1 percent was also seen as a sign that the Fed's plan to normalize monetary policy is likely to remain on track.

The notable move to the downside in late-day trading may have reflected modest strength that emerged on Wall Street, with the S&P 500 on pace to end the session at a new record closing high.

Following the slew of economic data released over the past week, the economic calendar is relatively quiet for much of next week.

Several key reports are scheduled to be release next Friday, however, with traders likely to keep a close eye on reports on retail sales, import and export prices, and consumer sentiment.

Bond trading could also be impacted by reaction to the results of the Treasury Department's auctions of three-year and ten-year notes and thirty-year bonds.

The Treasury is due to sell $27 billion worth of three-year notes next Tuesday, $21 billion worth of ten-year notes next Wednesday and $13 billion worth of thirty-year bonds next Thursday.