US Treasury yields fall, solid employment data puts focus on Fed

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Por Ross Kerber

Jul 2 (Reuters) – US Treasury yields fell on Friday after a robust payroll report raised uncertainty about how the Federal Reserve might respond.

* The return on the 10-year benchmark notes fell 3.9 basis points to 1.4407% towards the end. That was close to where it was operating before Labor Department data showed U.S. job growth accelerating in June.

* Nonfarm payrolls increased by 850,000 jobs last month, after rising 583,000 positions in May, the Labor Department said in its employment report issued Friday. The unemployment rate rose to 5.9% from 5.8% in May.

* Initially, Treasury bond yields soared due to strong job creation, then fell. Market analysts said the operations reflected disparate interpretations of how the Fed might incorporate the new information as it decides how to end the bond purchases it started to deal with the crisis.

* Normally, strong numbers would drive returns, said Priya Misra, global head of rate strategy at TD Securities in New York. “I think the market is torn between considering the market outlook or the Fed’s reaction,” he added of Friday’s trading.

* Minutes from the Fed’s June 16-17 meeting, when officials opened the debate on how to end bond purchases and noted that interest rate hikes were closer than previously thought, They will be published on Wednesday.

* The market close on Friday was expected in advance ahead of the Independence Day holiday on Sunday.

* The Treasury bond yield curve that is closely observed and that measures the spread between two-year and 10-year notes, considered as an indicator of economic expectations, operated at 120 basis points, less than one basis point per below Thursday’s close.

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