TREASURIES-Long bonds sag, US job gains signal eventual inflation

NEW YORK, Nov 2 (Reuters) - Prices of long-dated U.S. Treasuries slipped on Friday after an unexpectedly strong U.S. jobs report hinted at an economic recovery that could eventually lead to some more inflation. The Labor Department's report that job growth in October exceeded the most optimistic forecasts weighed on bonds maturing in 10 or more years. ``If the economy is improving, the bond market reads into that that we could have a little more inflation, and that adversely affects long-term bonds more than short-term Treasuries,'' said Jeffrey Cleveland, senior economist at Payden & Rigel, in Los Angeles. In afternoon trade, the benchmark U.S. 10-year note , down 9/32 immediately after the report, was unchanged on the day, its yield at 1.73 percent. Thirty-year Treasury bonds were down 6/32, their yields up to 2.92 percent from 2.91 percent late on Thursday. The U.S. Labor Department said employers added 171,000 people to payrolls in October and that 84,000 more jobs were created in August and September than earlier estimated, but the workweek length and hourly wages remained flat. The data were viewed as positive for the economy, but not strong enough to jeopardize the Federal Reserve's accommodative monetary stance. ``Incomes aren't really growing, and if incomes don't grow, how can spending grow?'' said Wilmer Stith, vice president and portfolio manager of the Wilmington Broad Market Bond Fund in Baltimore. ``By no means is the economy out of the woods.'' Jim Kochan, chief fixed-income strategist at Wells Fargo Funds Management LLC in Menomonee Falls, Wisconsin, observed that Treasuries have been ``range-bound'' for several weeks. ``The employment report was a good release, and more often than not, when the Treasury market sees stronger economic numbers, it sells off and then settles down again,'' he said. The jobless rate edged a tenth of a point higher to 7.9 percent, but that was due to workers returning to the workforce. Only people who are looking for a job count as unemployed.

The stronger-than-expected October jobs report and a push by issuers to get deals through before next week's presidential election boosted issuance in the U.S. investment-grade market. Eleven new deals were announced, including a three-part benchmark deal from Microsoft, a U.S. $2 billion deal from health insurer Aetna and a benchmark four-part deal from Verizon. ``With Hurricane Sandy, we ended up with the transactions scheduled over the course of this week jammed into the last two days, and with positive payroll numbers and elections on Tuesday, everyone felt like they should take the risk off the table and do their deal today,'' said the head of debt capital markets at a big U.S. bank.