Treasurys slide as unemployment rate slips unexpectedly, signaling strengthening economy

Treasurys fall on drop in unemployment rate

NEW YORK — Investors no longer interested in a safe bet sold off Treasurys Friday after the government said the economy lost fewer jobs last month.

The Labor Department’s report took investors by surprise and hurt demand for the security of government debt. Some investors instead funneled money into the latest stretch of a monthlong stock market rally. The Dow Jones industrials rose 114 points and all the major indexes were up more than 1 percent.

In late trading, the 10-year Treasury note fell 23/32 to 94 3/32, pushing its yield up to 3.86 percent from 3.76 percent late Thursday. A week ago, the 10-year yield stood at 3.48 percent. The move upward is significant because the yield affects rates on mortgages and other kinds of loans.

Investors in Treasurys and stocks had been jittery most of the week about the Labor Department report. The report Friday morning supported the notion that the economy is recovering from the longest recession since World War II.

Employers cut 247,000 jobs in July, the fewest in a year. Economists had predicted a loss of 320,000 jobs. Meanwhile, the unemployment rate slipped to 9.4 percent from 9.5 percent in June. It was the first drop in 15 months and analysts had been expecting an increase.

Treasury investors also had to prepare for an auction next week of a record $75 billion in debt. Most recent auctions have gone smoothly but investors remain on edge that the government will have to boost its payout to attract enough investors.

The Treasury Department has been issuing enormous amounts of debt to pay for government plans to stimulate the economy and shore up the nation’s banking system.

Investors are also looking to a two-day meeting of the Federal Reserve that ends Wednesday. Analysts don’t expect the central bank to raise interest rates but they will be looking for any signals about when policymakers might start to raise record-low interest rates to stave off eventual problems with inflation.

James Shelton, chief investment office at Kanaly Trust in Houston, said investors are beginning to look at where interest rates might head as the economy is “clearly turning a corner.”

He said that while the Fed has said it would like to keep rates low for an extended period, concerns about inflation could force quicker action.

If the Fed hikes rates too soon higher borrowing costs could make it harder for the economy to rebound. Leaving rates low risks allowing prices to eventually shoot higher and hurt the economy that way.

In other trading, the 30-year bond fell 28/32 to 94 8/32, and its yield rose to 4.61 percent from 4.54 percent.

The two-year note fell 6/32 to 99 13/32 and its yield rose to 1.31 percent from 1.21 percent.

The yield on the three-month T-bill was flat at 0.16 percent. Its discount rate was 0.17 percent.

The cost of borrowing between banks was little-changed. The British Bankers’ Association said the rate on three-month loans in dollars — the London Interbank Offered Rate, or Libor — remained at 0.46 percent.