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Treasuries Climb After Jobs Gains Trail Forecast a Second Month

Feb. 7 (Bloomberg) -- Treasuries rose after U.S. employers added fewer jobs than forecast for a second month, adding to speculation that growth in the world’s biggest economy may be faltering.

Ten-year note yields fell for the first time in four days. The Federal Reserve has reduced its monthly bond purchases under the quantitative-easing stimulus strategy to $65 billion over the past two months from 2013’s $85 billion, citing an improving economy.

“You have significant concerns about whether they can keep that timetable,” Aaron Kohli, an interest-rate strategist in New York at BNP Paribas SA, one of 21 primary dealers that trade with the U.S. central bank, said before the report. “It gives the market a fairly strong signal you can expect weakness in future data going forward. It adds to the nexus of worry that says this tapering move could be short-lived.”

The 10-year yield dropped seven basis points, or 0.07 percentage point, to 2.63 percent at 8:32 a.m. in New York, according to Bloomberg Bond Trader prices.

The 113,000 gain in employment followed a revised 75,000 increase the prior month, Labor Department figures showed today in Washington. The median forecast of economists in a Bloomberg survey called for a 180,000 advance. The unemployment rate dropped to the lowest level since October 2008 even as more Americans entered the labor force.

Yields on 10-year notes dropped 11 basis points on Jan. 10 after the government issued its December employment report. The yields climbed 15 basis points on Nov. 8 after data showed October payrolls increased by 204,000 jobs, compared with the gain of 120,000 forecast by economists in a Bloomberg survey.

Bond Gain

The Bloomberg U.S. Treasury Bond Index has gained 1.6 percent this year as a drop in risk appetite and a rout in emerging-market currencies have boosted haven demand.

Stocks slid last month, with the Standard & Poor’s 500 Index dropping 3.6 percent, the most since May 2012. Emerging- market currencies plunged last week after Argentina unexpectedly devalued the peso, Turkey’s decision to double interest rates backfired and China’s manufacturing growth slowed.

Treasury gains were tempered by data showing economic improvement. U.S. gross domestic product expanded at a 3.2 percent pace in the fourth quarter, the Commerce Department said Jan. 30, after growing 0.1 percent in the year-ago period.

The Fed’s bond purchases were designed to cap long-term borrowing costs and spur economic growth. In a statement Jan. 29 after their last meeting, policy makers’ decision to trim buying further showed they were sticking to their plan for a gradual withdrawal from the program as the economy progresses. They said labor-market data were “mixed but on balance showed further improvement.”

Benchmark Rate

The Fed left unchanged its statement that it will probably hold its target interest rate near zero “well past the time” that unemployment falls below 6.5 percent, “especially if projected inflation” remains below its longer-run goal of 2 percent. Policy makers meet next March 18-19.

The central bank’s preferred gauge of consumer prices rose 1.1 percent in December from a year earlier and hasn’t exceeded 2 percent since March 2012.

Ten-year note yields will climb to 3.42 percent by year- end, according to a Bloomberg survey of economists and analysts with the most recent forecasts given the heaviest weightings.

The odds the Fed will raise its benchmark rate to at least 0.5 percent by January 2015 are 12 percent, based on futures contracts. The Fed has kept its target in a range of zero to 0.25 percent since December 2008 to support the economy.

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