Treasuries Finish Mixed

The strong payrolls report hurt shorter-dated Treasuries and lessened chances for an interest-rate cut. But the less-sensitive, longer-dated issues finished with panache amid weaker stocks

Treasuries rounded out the week on solid footing after volatile ride on Friday following the key payrolls report. While September payrolls sank 43,000, the upwards revision in August and still-lower unemployment rate at 5.6% made the report on aggregate less friendly to bonds than rumored. Disappointment lingered on the front-end to the close, though it too was led higher by a strong recovery in the long-end thanks to event risk and weaker stocks.

The resulting curve flattening sent the two-year note and 30-year bond spread five basis points narrower to +292 basis points, while the December bond reversed its one point drop into a 6/32 gain to 113-20 by the close.

"Black box" funds were rumored early sellers across the maturity spectrum on the the better than expected unemployment print, but appeared to reverse course at session lows, adding g-forces to the roller-coaster ride. The December bond topped 114-08 before late profit-taking brought it off highs.

News that President Bush will make a prime time speech on Iraq on Monday also helped sponsor a bid from lows, as did a number of bullish options trades. European and U.S. swap spreads widened on worries in the banking sector of both regions, though short-dated Treasury futures lagged, merely paring losses set after the unemployment data.

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