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Treasurys recover on Fed outlook

January 12, 2010 | "CNNMoney"

NEW YORK (CNNMoney.com) -- Treasurys recovered Monday as investors continued to digest the recent unemployment data, which reinforces the Federal Reserve's outlook to keep interest rates low.

What prices are doing: The benchmark 10-year note was up 7/32 at 96-15/32, and the yield fell to 3.81% from 3.83% late Friday. Bond prices and yields move in opposite directions.

The 30-year bond rose 2/32 to 94-20/32 and its yield fell to 4.72%. The 2-year note increased 3/32 to 100-4/32 and yielded 0.94%.

What's driving prices: The government reported Friday that employers shed 85,000 jobs in December, missing analysts' expectations, which called for no change. Analysts said the worse-than-expected report suggests to investors that the Fed's won't raise interest rates soon.

The Federal Reserve has kept its key interest rate between 0% and 0.25% since December 2008 in an effort to stimulate the economy. In its most recent policy statement last month, the Fed suggested it will hold interest rates near the historic lows because economic weakness and the low risk of inflation.

But impending auctions capped gains and weighed on long-term bonds. The Treasury Department is expected to sell $10 billion worth of 10-year Treasury inflation-protected securities Monday. Later in the week, the department will offer $84 billion in sales of 3-year notes, 10-year notes and 30-year bonds.

What analysts are saying: "Friday's unemployment numbers may have taken the starch out of investors," said Peter Cardillo, chief market strategist at Avalon Partners. "The numbers seem to indicate that the Fed won't raise interest rates sooner than anticipated."

Looking ahead, Cardillo said investors will be looking at upcoming economic data to gauge the strength in economic recovery.

By Hibah Yousuf, staff reporter

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