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Treasuries Pull Back Sharply On Better Than Expected Jobs Data

Treasuries showed a substantial move to the downside during trading on Friday, giving back ground after moving notably higher over the two previous sessions.

Bond prices fell sharply early in the session and remained firmly negative throughout the trading day. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, surged up by 9.5 basis points to 2.048 percent.

With the jump on the day, the ten-year yield rebounded strongly after ending Wednesday's trading at its lowest closing level since Election Day of 2016.

The pullback by treasuries came in reaction to the release of a closely watched Labor Department report showing a substantial reacceleration in the pace of U.S. job growth in the month of June.

The report said employment surged up by 224,000 jobs in June after edging up by a downwardly revised 72,000 jobs in May.

Economists had expected employment to increase by about 160,000 jobs compared to the addition of 75,000 jobs originally reported for the previous month.

The data points to a rebound in the labor market following the weakness seen in May, dampening investor hopes for a near-term interest rate cut by the Federal Reserve.

Andrew Hunter, Senior U.S. Economist at Capital Economics, said the strong jobs data would seem to "make a mockery" of market expectations the Fed will cut interest rates by up to 50 basis points later this month.

"Employment growth is still trending gradually lower but, with the stock market setting new records and trade talks back on (for now at least), the data support our view that Fed officials are more likely to wait until September before loosening policy," Hunter said.

Despite the stronger than expected job growth, the report said the unemployment rate inched up to 3.7 percent in June from 3.6 percent in May. The unemployment rate had been expected to hold steady.

However, the uptick in the unemployment rate reflected an increase in the size of the labor force, which expanded by 335,000 people compared to the 247,000-person jump in the household survey measure of employment.

The outlook for interest rates is likely to remain in focus next week, as Fed Chairman Jerome Powell sits down for two days of Congressional testimony and the central bank releases the minutes of its latest monetary policy meeting.

Closely watched reports on consumer and producer price inflation could also have an impact on perceptions of the likelihood of an interest rate cut.

Bond traders are also likely to keep an eye on the results of the Treasury Department's auctions of three-year and ten-year notes and thirty-year bonds.

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