Bonds fall as jobs data less dire than feared

By Chris Reese

NEW YORK (Reuters) - U.S. Treasury debt prices fell on Friday on news of an unexpectedly small decline in nonfarm payrolls last month, which mitigated views that the economy was on course for a deep recession.

The U.S. jobs figures, along with an easing unemployment rate in April, also bolstered some expectations the Federal Reserve will pause for the time being from their recent interest-rate cutting campaign.

"The idea that the economic contraction is not yet deep has been buoyed," said Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co in New York, adding "these data strengthen the case for a pause in the Fed's interest rate cuts."

The benchmark 10-year Treasury note <US10YT=RR> was trading 26/32 lower in price for a yield of 3.88 percent from 3.77 percent late on Thursday, while the two-year Treasury note <US2YT=RR> was trading 7/32 lower in price for a yield of 2.50 percent from 2.38 percent.

Two-year yields reached as high as 2.55 percent on Friday morning, marking their loftiest since mid-January.

The Labor Department said on Friday that U.S. employers cut 20,000 jobs in April, marking the fourth straight month of employment contraction. Economists on average had been looking for payrolls to decline by 80,000 after an upwardly revised loss of 81,000 jobs in March. For details see ID:nN02551119.

The unemployment rate also eased to 5.0 percent from 5.1 percent in March, which analysts said was further evidence the economy was not going into a recessionary tailspin.

"Overall this is a negative for the bond market," said George Adell, fixed income strategist at Commerce Capital Markets Inc in Jupiter, Florida, adding "this still spells weakness in the economy, but whether we are in a recession is still unclear. This will keep the Fed on guard in the future whether they need to cut rates further."