Treasurys were mildly higher Friday, after being buffeted by a complex mix of news developments, including heavy monthly job losses on the one hand and a generally successful stock sale by bond insurer Ambac Financial Group on the other.
In addition, the Federal Reserve took major steps to increase liquidity in the financial system at a time when money is exceptionally tight. Given an unnerving wave of liquidations of securities by hedge funds desperate to raise cash this week, investors were more focused on the financial market developments than the worrisome economic numbers.
"At this point the market is beyond economic data," said Tom di Galoma, head of Treasurys trading at Jefferies & Co. "The market doesn't have the liquidity it once hand. There used to be buyers and sellers. There are just sellers now. But the selling overall has been good for Treasurys as that is all anyone wants to buy."
Treasury prices gave back some gains Friday after Ambac raised $1.5 billion by selling stock and convertible securities to protect its stellar "AAA" rating. That development should ease tension in the municipal bond market, which was rocked in February by worries that Ambac and MBIA, the major insurers in the U.S. market, would lose their crucial "AAA" ratings.
Still, any sign that things could return to normal in the municipal bond market lessens the appeal of government bonds as low-risk assets.
The 2-year note rose 4/32 to 100 31/32 with a yield of 1.5 percent, down from 1.53 percent late Thursday, according to BGCantor Market Data. Immediately after the February jobs report, the yield slipped to 1.40 percent, its weakest level since July 16, 2003.
The 10-year note gained 11/32 to 99 25/32 with a yield of 3.53 percent, down from 3.59 percent late Thursday. Prices and yields move in opposite directions.
The 30-year bond rose 3/32 to 97 20/32 with a 4.52 percent yield, down from 4.56 percent.
The Fed Friday stepped up its efforts to ease the credit crisis by increasing the amount of money it will auction to banks this month to $100 billion from $60 billion. The central bank also said it will execute larger-than-usual repurchase agreements, or repo, transactions to allow it to pump up to $100 billion into the financial system at any one time.
In early trade, Treasurys rallied sharply Friday after news of heavy job losses last month suggested a recession is under way. The Labor Department said the economy gave up 63,000 jobs in February, the heaviest losses in five years.
The unemployment rate dipped to 4.8 percent in February from 4.9 percent in January. But that change may only indicate that many people are discouraged about their prospects and have left the work force permanently.
The February report showed the first monthly back-to-back job losses since May and June 2003, when the job market was still struggling to recover from the 2001 recession.
The weak jobs report was widely seen as indicating the Federal Reserve will have to continue cutting rates to stimulate the economy.
The central bank has cut the overnight fed funds rate to 3 percent. Before the credit crisis began last fall, it had remained at 5.25 percent for many months. The Fed will hold its next monetary policy meeting on March 18.
On Friday, Dallas Fed President Richard Fisher, who has voted against recent rate cuts, warned that the markets shouldn't expect more. Still, fed funds futures contracts on Friday showed investors are betting on a rate cut of up to 0.75 percentage point.
The biggest challenge for both the Fed and the economy is that inflation is rising although the economy is wobbly. Fed Vice Chairman Donald Kohn on Friday acknowledged that rising commodities prices have taken the Fed by surprise. If prices do not level out, as the central bank has projected, there will be "important implications" for monetary policy, he said.