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Bond yields jump after March employment report

April 2, 2010 | 10:22 am

The government's report Friday on March employment gains was weaker than some Wall Street pros had expected, but it still was strong enough to drive Treasury bond yields higher -- continuing the recent trend of rising interest rates.

Stock market investors, meanwhile, will have to wait until Monday to react: Equity markets were closed in observance of Good Friday.

The government said the economy added a net 162,000 jobs in March, the biggest number in three years. As expected, the total was boosted in part by hiring of temporary workers for the U.S. census.

The March gain in payrolls was smaller than the 184,000 median gain that economists surveyed by Bloomberg News had predicted.

But bond traders took the news as another sign that the economic recovery can sustain itself. And that is more likely to mean higher interest rates than lower rates.

In an abbreviated trading session, the yield on the 10-year Treasury note -- a benchmark for mortgages -- rose to 3.94%, up from 3.85% on Thursday and the highest since mid-June.

The two-year T-note yield jumped to 1.10%, from 1.03% on Thursday and the highest since Dec. 31.

One growing concern for the bond market is that investors won't be willing to continue buying the Treasury's wave of new debt offerings -- needed to finance the federal deficit -- unless Uncle Sam pays higher yields. That, in turn, would drive up other longer-term interest rates.

Treasury yields surged the week of March 22 as demand at the government's auctions of $118 billion of two-year, five-year and seven-year notes was weaker than expected.

The 10-year T-note yield now is up 0.27 of a point just since March 23. Historically, though, bond yields still are relatively low.

But rising long-term Treasury yields have been putting upward pressure on mortgage rates, raising concerns about the housing market's recovery. And this week the Federal Reserve completed its 16-month-old program of buying $1.25 trillion of mortgage-backed bonds -- the goal of which was to keep home loan rates as low as possible.

It all adds up to a lot more uncertainty for the bond market, which is what Friday's sell-off in Treasuries reflected.

-- Tom Petruno