Treasuries Close Modestly Higher Following Volatile Session

(RTTNews) - Treasuries saw some volatility over the course of the trading session on Friday but managed to end the day modestly higher.

After seeing initial strength, bond prices pulled back into the red in morning trading before rebounding in the afternoon. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by 1.6 basis points to 1.848 percent.

With the modest decrease on the day, the ten-year yield ended the session at its lowest closing level in a year.

The volatile session came following the release of a Labor Department report showing disappointing job growth in January but also a drop in the unemployment rate to a nearly eight-year low.

The Labor Department said non-farm payroll employment climbed by 151,000 jobs in January compared to economist estimates for an increase of about 188,000 jobs.

While the report also said the jump in employment in December was downwardly revised to 262,000 jobs from 292,000 jobs, the increase in employment in November was upwardly revised to 280,000 jobs from 252,000 jobs.

With the combined revisions, job growth in November and December was only 2,000 jobs lower than previously reported.

The Labor Department also said the unemployment rate edged down to 4.9 percent in January from 5.0 percent in December, while economists had expected the rate to come in unchanged.

The unexpected decrease pulled the unemployment rate down to its lowest level since a matching rate in February of 2008.

Analysts also highlighted a 0.5 percent increase in average hourly earnings, which led to some concerns about the outlook for interest rates.

"It is difficult to see exactly what the Fed will make of this," said Rob Carnell, Chief International Economist at ING Commercial Banking. "But with global financial conditions tightening, this release says 'more data needed' before drawing any firm conclusions about any shift in Fed policy."

"That does at least suggest that a March hike remains off the table," he added. "And hopefully by then, we will have a better idea of whether things are really slowing, with no further hikes possible, or whether recent data were just a soft patch and the Fed can resume tightening later in the year."

A separate report from the Commerce Department showed that the U.S. trade deficit widened more than expected in December amid an increase in imports and a decrease in exports.

The report said the trade deficit widened to $43.4 billion in December from a revised $42.2 billion in November. The deficit has been expected to widen to $43.0 billion.

Next week, traders are likely to keep an eye on remarks by Federal Reserve Chair Janet Yellen, who is scheduled to deliver her semi-annual testimony to Congress.

The economic calendar is relatively quiet for much of the week, but reports on retail sales, import and export prices, and consumer sentiment are all due to be released next Friday.

Bond trading could also be impacted by reaction to the Treasury Department's auctions of three-year and ten-year notes and thirty-year bonds.

The Treasury is due to sell $24 billion worth of three-year notes next Tuesday, $23 billion worth of ten-year notes next Wednesday and $15 billion worth of thirty-year bonds next Thursday.