Treasury prices finished at or near their best levels of the year on Friday as geopolitical concerns outweighed better than expected headline employment data. Ongoing demand for the safety of Treasuries continued to underpin the market, and demand intensified after the nation's terror alert status was upgraded to "orange" from "yellow."
The two-year note outperformed on the day and shed about 10 basis points from its post-payroll spike. The two-year note and 30-year bond curve steepened about four basis points on the day to +318 basis points, and is out 18 basis points on the week. The headline payroll data initially augured for a much different session. Indeed Treasuries plunged on news of a 143,000 surge in payrolls and a drop in the unemployment rate to 5.7% from 6.0%. The yield on the two-year surged over six basis points, while the long bond lost almost a point.
However, realization that the data were boosted by seasonals and other exogenous factors was the impetus for dip buying and short covering, especially ahead of the weekend. Reports of a fire at a downtown Chicago office building also initiated a flight back into bonds. But the afternoon announcement of a shift to "orange" alert added impetus to the rebound, as no one wanted to be short bonds over the weekend.