Treasury Yields Hit 11-Month High on US Jobs Data

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Prices of U.S. Treasurys fell on Friday, boosting benchmark yields to an 11-month high as data showed U.S. job growth picked up more than expected in February while the unemployment rate slipped to a four-year low.

Nonfarm payrolls jumped by 236,000 jobs last month, the Labor Department said, substantially above economists' expectations of a 160,000 gain.

"There's a lot to like in this report," said Terry Sheehan, an economic analyst with Stone & McCarthy Research Associates in Princeton, New Jersey. "The main trends are all moving in the right direction."

Prices for benchmark 10-year notes fell 17/32 to yield 2.06 percent, up from 1.9965 percent late on Thursday, and the highest yield since April.

"From a technical standpoint, if the 10-year yield closes above 2.06 percent, the high yield we reached in January, that would be a negative event that could push yields even higher," said Tom DiGaloma, managing director at Navigate Advisors. "Over the near term, we'd be targeting 2.13 percent to 2.15 percent."

In late trade, the 30-year bond was down 30/32, its yield rising to 3.257 percent from 3.2016 late on Thursday.

(Read More: Private Jobs Continue to Show Signs of Growth)

Yields slipped from early session highs as investors delved deeper into the report.

A continued slide in the number of people participating in the labor market was one shadow over the results.

"This leaves the three-month average rate of payroll growth at 191k, slightly below the 200k in the January report, which leads us to temper our view of labor market strength based on the February data alone," said Michael Gapen of Barclays.

The U.S. jobless rate, which fell to 7.7 percent in February, would actually be around 11.3 percent without the drop in labor force participation, said UniCredit economist Harm Bandholz in a research note.

A little over half of the drop in labor force participation is due to demographics, Bandholz said, but the rest is due to direct damage to the U.S. job market from the Great Recession.

The unemployment rate, while falling to 7.7 percent from 7.9 percent, remains far above the 6.5 percent the Federal Reserve wants to see, which means the Fed is unlikely to tighten rates anytime soon.

Analysts noted the Fed is looking for steady improvement over more than just one month of data.

"No, it's not anything that goes to change perspectives, and particularly the Fed's perspective," said Ellen Zentner, senior U.S. economist with Nomura Securities in New York. "The average over the past two months is marginally better than the 12-month moving average, but not enough to move the needle."

That likely means continued asset-buying by the U.S. central bank. The Fed has been buying $85 billion per month of mortgage-backed securities and Treasurys through the year.

US Treasury Yields

US 10-YR
US 30-YR