Treasuries erase losses as earnings slowdown tempers jobs gains

Treasuries erased losses after a report showed faster-than-projected jobs growth last month, while average hourly earnings were unchanged, raising concern the U.S. economy is struggling to accelerate.

Benchmark 10-year notes rose for a second day after the payrolls data, which comes four days before the U.S. presidential election. The report showed the U.S. added 171,000 jobs in October, compared with a forecast of 125,000 and a revised 148,000 gain the previous month, while the unemployment rate rose to 7.9 percent from 7.8 percent the month before.

“The rise in yields was just a knee-jerk data being stronger than expected,” said Ward McCarthy, chief financial economist at Jefferies & Co. Inc. in New York, one of the 21 primary dealers that trade with the Federal Reserve. “What we’ve seen since that time is indecisiveness as to what this data means as far as the election is concerned.”

The yield on 10-year notes was little changed at 1.72 percent at 3:52 p.m. New York time, after gaining as much as five basis points. The 1.625 percent note due in August 2022 traded at 99 6/32.

Thirty-year bond yields climbed one basis point to 2.91 percent, after touching 2.96 percent.

Futures Holdings

Hedge-fund managers and other large speculators more than doubled their net-long position in 10-year note futures in the week ending Oct. 30, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 169,456 contracts, the most this year, on the Chicago Board of Trade. Net-long positions rose by 90,160 contracts, or 114 percent, from a week earlier.

Treasury trading slowed, with volume reported by ICAP Plc, the largest inter-dealer broker of U.S. government debt, at $112.6 billion through 10 a.m., compared with $208.7 billion yesterday and $261.3 billion on Oct. 5, the date of the previous payrolls report. It has averaged $240.5 billion in 2012.

The Treasury is scheduled to sell $72 billion of securities next week, including $32 billion of three-year notes Nov. 6, $24 billion of 10-year debt Nov. 7 and $16 billion of 30-year bonds Nov. 8.

“Focus goes immediately to how do we set up for the auctions next week in light of the election and that fact that desks are still understaffed,” said Chris Ahrens, an interest- rate strategist at UBS Securities LLC in Stamford, Connecticut, a primary dealer. “You will have power next week, but whether you have these places mopped out and equipment ready to go is a question mark,” Ahrens said referring to damage in New York City and the region from Hurricane Sandy.

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