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TREASURIES-Bonds sink on slimmer-than-forecast job losses

Published: 07 Jun 2009 17:17:39 PST

* Smaller-than-expected decline in payrolls hits bonds

* Payrolls reinforce signs of slowing economic decline

* Yield curve reaches record steep level (Adds analysts quotes, updates prices)

NEW YORK, June 5 - U.S. Treasury debt prices sank on Friday after the government reported a much smaller than expected drop in May non-farm payrolls, which added to recent signs the economic decline may be slowing.

U.S. employers cut 345,000 jobs last month, the fewest since September and far less than the 520,000 consensus forecast. However, the Labor Department said the unemployment rate raced to 9.4 percent, the highest since a matching rate in July 1983, from 8.9 percent in April.

March and April's job losses were also revised down to show smaller declines.

"Treasuries are selling off like crazy. Taking a long-term perspective, the safe haven bid for Treasuries is going to wane," said William Larkin, portfolio manager at Cabot Money Management in Boston.

The benchmark 10-year note was trading 28/32 lower in price for a yield of 3.82 percent, up from 3.71 percent late on Thursday. The yield reached as high as 3.90 percent after the release of the data, marking the loftiest level in more than six months.

The 30-year long bond briefly traded over two points lower in price after the data, then retraced losses to trade 23/32 lower for a yield of 4.63 percent from 4.58 percent late on Thursday.

The Treasury yield curve, or the spread between the yield on 2-year notes and 10-year notes, expanded to as much as 281 basis points, marking its widest on record.

"The storm clouds of recession appear to be clearing as the green shoots of recovery start to take hold," Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi UFJ in New York, adding, "based on the latest job count readings, it looks like the economy has hit bottom and the recession is all but over."

Two-year notes were trading 11/32 lower in price for a yield of 1.14 percent from 0.96 percent late on Thursday.