Treasuries End Sharply Higher

A bigger-than-expected decline in payrolls prompted traders to trim their expectations for an interest rate increase

Treasuries ran a gauntlet of data Friday and recovered, thanks to some pre-weekend "Superbowl" short-covering on the vague threat that the sporting event could be targeted by terrorism.

Nonfarm payrolls were weaker than expected (-89,000), and though the unemployment rate fell 0.2% to 5.6%, this helped spark choppy gains over course of the morning. The ISM report on manufacturing firmed to 49.9 from 48.1, but construction spending was muted at +0.2% and the final University of Michigan consumer sentiment index was revised lower to 93 from 94.2.

On balance, the data was mostly friendly and flows quickly wound down afterwards, even as short-covering and some volume selling on 10-year notes continued. Equities tottered lower to round out the week and surreal Superbowl event risk was rumored to have jolted the front-end of the curve higher. This knocked two-year yields back down to 3.04% from as high as 3.17% after unemployment and left the curve about five basis points steeper at +233 basis points. The March bond advanced from as low as 102-14 to close up half a point at 103-11.

U.S. auto sales hit the skids in January and winter storms in the Midwest jolted energy prices sharply higher.

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