Treasurys rallied Friday after the U.S. jobless rate jumped to its highest in more than 3-1/2 years, soothing fears of an imminent interest rate hike by the Federal Reserve.
Crude oil spiked to new records around $139 per barrel, deepening a stock market sell-offand driving flows out of riskier assets into safe-haven Treasurys. However, a sustained acceleration of inflation pressures even in a period of weak economic growth could later prove negative for bonds, analysts warned.
The jobs report "caught bond and stock traders by surprise. It raised new concerns about where this economy is going and that we may end up in a recession, resulting in a massive sell off in stocks and buying in that traditional safe standby, Treasury bonds," said David Dietze, chief investment strategist at Point View Financial Services in Summit, N.J.
The unemployment rate jumped to 5.5 percent in May from April's 5.0 percent, the biggest one-month jump in 22 years.
The benchmark 10-year Treasury note's price climbed 27/32. Its yield, which move inversely with its price, fell to 3.94 percent from 4.04 percent late Thursday.
The surge in the jobless rate, together with a fifth straight month of declines in non-farm payrolls jobs was a stark reminder that the economy is still struggling with the housing slump and the fallout from the credit crunch.
News of escalating tension between Iran and Israel also spurred safe-haven bidding for Treasuries, analysts said.
Israeli Transport Minister Shaul Mofaz told a newspaper that an Israeli attack on Iranian nuclear sites looks "unavoidable."
Two-year Treasury notes gained 6/32 in price for a yield of 2.41 percent, down from 2.51 percent late on Thursday.
"Geopolitical forces, the employment report and this massive jump in oil prices are contributing to the dramatic decline in stock prices," said Walter Gerasimowicz, CEO of wealth management firm Meditron Asset Management in New York.