U.S. Treasurys yields surged on Friday after employers added more jobs than expected in April, adding to hopes the economy is not slowing as badly as feared.
The yield increase is seen as likely to help demand for $72 billion in new Treasurys sales next week.
U.S. employment rose more than expected in April at 165,000, and hiring was much stronger than previously thought in the prior two months. The jobless rate also fell to 7.5 percent, the lowest since December 2008, the Labor Department said on Friday.
"Everyone was set up for a more gloomy employment report given the recent run of economic data and the chatter about the Fed possibly increasing the size of their purchases," said Jeffrey Cleveland, a senior economist at Payden & Rygel in Los Angeles.
The Federal Reserve said on Wednesday it may increase or decrease bond purchase from its current $85 billion per month, depending on the strength of the economy and on inflation. Before a recent slew of more negative data, economists had been expecting the Fed to taper its purchases heading into year-end.
Friday's positive jobs surprise sent benchmark 10-year note yields up 13 basis points as investors reevaluated the strength of the economic recovery. Fears that growth is slowing sharply has helped pull benchmark 10-year yields down by 46 basis points in the past two months.
Ten-year notes yields were last at 1.75 percent, up from 1.62 percent on Thursday. It is the biggest single-day jump since Sept. 14, the day after the Federal Reserve launched its latest stimulus program that included adding $40 billion a month in purchases of mortgage-backed debt.
"It's a huge move for the ranges we've been in," said Charles Comiskey, head of Treasurys trading at Bank of Nova Scotia in New York. "The market feels heavy, people were caught offside, there's definitely been some selling here."
Some traders were still reluctant to read too much into the jobs figure, however, as other economic indicators still point to slowing growth and as inflation holds much lower than the Fed's target of around 2 percent.
That makes it likely that the Fed's bond purchases are likely to continue for some time yet.
"The Fed is focused on the economy, growth and jobs, but they are also looking at a situation of possible disinflation, maybe heading towards deflation. That has been their biggest fear for a long time," said Comiskey.
The yield increases should add to demand for next week's auctions, as some analysts had worried that low coupons before today's data would scare away some fund managers.
The Treasury will sell $32 billion in three-year notes on Tuesday, $24 billion in 10-year notes on Wednesday and $16 billion in 30-year bonds on Thursday.
The Fed will purchase Treasurys every day next week as part of its ongoing purchase program, including between $2.75 billion and $3.50 billion in notes due 2020 to 2023 on Monday.