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Treasuries Give Back Ground Following Better Than Expected Jobs Data

After moving notably higher over the course of the two previous sessions, treasuries gave back some ground during trading on Friday.

Bond prices saw some early volatility but slid firmly into negative territory as the day progressed. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 3.7 basis points to 1.728 percent.

The pullback by treasuries came as much stronger than expected U.S. jobs data washed away recent concerns about the economic outlook.

The Labor Department said non-farm payroll employment climbed by 128,000 jobs in October compared to economist estimates for an increase of about 89,000 jobs.

The report also showed substantial upward revisions to job growth in September and August, with revised data showing employment jumped by 180,000 jobs and 219,000 jobs, respectively.

With the upward revisions, employment gains in September and August combined were 95,000 more than previously reported.

"The upshot is that the three-month average gain is now 175,000, which is easily enough to outpace population growth," said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, "That is in stark contrast with much of the recent survey evidence, which had pointed to a sharp slowdown in employment growth."

Despite the stronger than expected job growth, the report said the unemployment rate inched up to 3.6 percent in October from 3.5 percent in September. The uptick matched economist estimates.

The unemployment rate crept up from the nearly 50-year low hit in the previous month as a 325-person jump in the size of the labor force more than offset a 241,000-person increase in the household survey measure of employment.

Meanwhile, the Institute for Supply Management released a separate report showing a continued contraction in U.S. manufacturing activity in the month of October.

The ISM said its purchasing managers index crept up 48.3 in October from 47.8 in September, although a reading below 50 still indicates a contraction in manufacturing activity. Economists had expected the index to rise to 48.9.

In the previous month, the index fell to its lowest level since hitting 46.3 in June of 2009, the last month of the Great Recession.

"Comments from the panel reflect an improvement from the prior month, but sentiment remains more cautious than optimistic," said Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee. "Global trade remains the most significant cross-industry issue."

Next week's trading may be impacted by reaction to reports on the U.S trade deficit, service sector activity, labor productivity and consumer sentiment.

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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