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Treasuries Extend Sell-Off Following Much Better Than Expected Jobs Data

Treasuries moved significantly lower during trading on Friday, extending the steep drop seen over the two previous sessions.

Bond prices regained some ground after an early sell-off but remained firmly negative. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 8.4 basis points to 0.904 percent.

The ten-year yield closed higher for the fifth consecutive session, ending the day at its highest closing level in well over two months.

The continued weakness among treasuries came as the Labor Department's closely watched monthly jobs report seemed to prove traders were right to be optimistic about a quick economic recovery.

The Labor Department said non-farm payroll employment jumped by 2.51 million jobs in May after plummeting by a revised 20.69 million jobs in April.

The record spike in employment came as a shock to economists, who had expected the loss of another 8.0 million jobs following the nosedive of 20.5 million jobs originally reported for the previous month.

Employment rose sharply in leisure and hospitality, construction, education and health services, and retail trade, according to the Labor Department.

The Labor Department claimed the improvements in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus pandemic and efforts to contain the spread of the disease.

James Knightley, Chief International Economist at ING, called the data "simply astonishing given the slow pace of reopening and the fact that more than 12 million people filed a new unemployment claim during the survey period."

With the unexpected rebound in employment, the Labor Department said the unemployment rate dropped to 13.3 percent in May from 14.7 percent in April. Economists had expected the unemployment rate to surge up to 19.8 percent.

The unexpected decrease in the unemployment rate came as the household survey found employment soared by more than 3.8 million persons compared to the 1.7 million person increase in the size of the labor force.

However, Knightley said there are "some oddities in here," as are the number of unemployed fell by only 2.1 million, suggesting "new workers appear to have been magicked up out of no-where."

A note from the Labor Department also revealed the unemployment rate would have been about 3 percentage points higher if not for the misclassification of persons absent from work due to coronavirus-related business closures.

The Federal Reserve's monetary policy meeting is likely to be in the spotlight next week, although traders may also keep an eye on reports on consumer and producer prices, weekly jobless claims, and consumer sentiment.

Bond trading could 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.

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