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Treasuries Move To The Upside After Seeing Initial Weakness

Treasuries initially moved lower in reaction to the monthly jobs report but turned higher over the course of the trading session on Friday.

Bond prices bounced off their early lows and remained in positive territory for the rest of the day. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, dipped 2.1 basis points to 2.531 percent.

The pullback by treasuries came even though the Labor Department's closely watched monthly jobs report showed strong than expected job growth and the unemployment rate at a nearly 50-year low in April.

The Labor Department said non-farm payroll employment surged up by 263,000 jobs in April following a downwardly revised increase of 189,000 jobs in March.

Economists had expected employment to climb by 185,000 jobs compared to the addition of 196,000 jobs originally reported for the previous month.

The report also said the unemployment rate fell to 3.6 percent in April from 3.8 percent in March, while economists had expected the rate to remain unchanged.

With the unexpected decrease, the unemployment rate slid to its lowest level since hitting 3.5 percent in December of 1969.

The drop in the unemployment rate was largely due to a significant contraction in the labor force, however, with the labor force shrinking by 490,000 people.

The Labor Department also said the average workweek for all employees on private non-farm payrolls decreased by 0.1 hour to 34.4 hours in April.

"The drop back in hours worked and the continued weakness in the household survey measure of employment suggests that the labor market is not quite as strong as that decent headline gain implies," said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, "We still expect a slowdown in economic growth over the rest of the year to drag payroll employment growth lower."

Treasuries saw some further upside after a separate report from the Institute for Supply Management unexpectedly showed a continued slowdown in the pace of service sector growth in the month of April.

The ISM said its non-manufacturing index dropped to 55.5 in April after falling to 56.1 in March, with the index hitting its lowest level since a matching reading in August of 2017.

While a reading above 50 still indicates growth in the service sector, economists had expected the index to inch up to 57.0.

The economic calendar for next week starts off relatively quiet, although traders are likely to keep a close eye on reports on the U.S. trade deficit and producer and consumer price inflation.

Bond trading may also be impacted by reaction to the results of the Treasury Department's auctions of three-year and ten-year notes and thirty-year bonds.

The Treasury plans to sell $38 billion worth of three-year notes next Tuesday, $27 billion worth of ten-year notes next Wednesday and $19 billion worth of thirty-year bonds next Thursday.

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