U.S. government bond prices rose as recession fears mounted after news of the first labor market contraction in four and a half years.
A surprise increase in manufacturing activitymuddled the outlook somewhat and tempered the initial gains in Treasurys, but investors continued to bet that the erosion of jobswould keep the Federal Reserve in rate-cutting mode.
Traders had factored more rate cuts into bond prices even before the data and, therefore, watched stocks for indications of investors' appetite for risk given the economic headwinds and steep monetary easing already in place.
They said a rise in stock prices was moderating the gains in bonds that might be expected after such a weak jobs report.
"On balance everything is consistent with a slowing economy. Right now you've got weakish data but then you've also got equities doing well," said Carl Lantz, U.S. interest rate strategist at Credit Suisse in New York.
"For the balance of the day it is all going to be about stocks. I think a lot of technicians want them to have a decent close on the week. If stocks can't do well with 125 basis points of Federal Reserve rate cuts then it gets kind of worrying."
The Federal Reserve cut U.S. interest rates by a hefty half-percentage point Wednesday. Combined with a bold three-quarters of a point reduction last week, it marks one of the most abrupt rate-cutting sprees in modern Fed history.
Benchmark 10-year notes rose 3/32, which pushed down the yield to 3.58 percent from 3.60 late on Thursday.
Two-year notes gained 3/32 in price, lowering the yield to 2.06 percent.
The 30-year bond climbed 7/32 for a yield of 4.31 percent.
Some 17,000 jobs were cut last month, sharply contrary to Wall Street analysts' forecasts that 80,000 would be created.
An Institute for Supply Management report showing a modest revival in manufacturing during January took some sting out of the job losses but markets were switching into low-growth, if not recession, mode.
"These numbers will probably keep the Fed on an accommodative track," said David Coard, head of fixed-income sales at Williams Capital Group, of the employment data. "This is bullish for Treasurys."