* Ten-year yields retrace after earlier hitting 2.93 percent
* Some traders see short squeeze after initial yield spike
* Strong jobs data raises bets that Fed will act sooner
* Fed buys $5.13 billion notes due 2017, 2018
By Karen Brettell and Luciana Lopez
NEW YORK, Dec 6 (Reuters) - U.S. Treasuries' yields were
steady on Friday after they briefly surged to their highest
level since September following a strong jobs report, which
caused investors to evaluate anew when the Federal Reserve is
likely to begin paring back its bond-purchase program.
U.S. employers added 203,000 jobs in November and the
jobless rate fell to a five-year low of 7.0 percent, raising
expectations the Federal Reserve will begin reducing its bond
purchases in coming months.
But Treasuries were volatile and traders said some investors
positioning for yield increases may have been caught by a short
squeeze that sent yields tumbling, leaving them be near
unchanged after an initial jump.
"I think everyone got a little too far ahead of themselves
expecting very strong economic numbers. The market priced in
most of a worse-case scenario heading into the number," said
Aaron Kohli, an interest rate strategist at BNP Paribas in New
Benchmark 10-year notes were last up 2/32 in
price to yield 2.857 percent, after briefly rising as high as
2.93 percent, the highest level since Sept. 13. They have
increased from 2.70 percent a week-and-a-half ago.
The 30-year bond traded up 13/32 in price to
yield 3.890 percent.
"The market reacted pretty violently to the report, and I
think a lot of people got caught in the hole," said Charles
Comiskey, head of Treasuries trading at Bank of Nova Scotia in
Traders had expected job gains of around 200,000, higher
than economists' expectations of around 180,000, based on the
median estimate of 90 economists polled by Reuters before the
The Federal Reserve will start reducing its massive
bond-buying program no later than March, according to a Reuters
poll on Friday, with a handful of Wall Street firms expecting
the U.S. central bank taking action as early as December
following a second straight month of robust jobs gains.
Still, the Fed could wait for a more sustained run of data -
and the confirmation of Janet Yellen as the new Fed chair -
before changing its policy stance.
"If you string these kind of numbers consistently for the
next six months or so I think you will see an exit, but I don't
think that's happening until after she's confirmed and after you
see these numbers fall in line," said Richard Daskin, the chief
investment officer of RSD Advisors in New York.
Improving labor market prospects also buoyed consumer
confidence in early December. The Thomson Reuters/University of
Michigan's preliminary consumer sentiment index jumped to 82.5
from 75.1 in November, a separate report showed on Friday.
The Fed will meet on Dec. 17 and 18 in its final meeting of
the year. Some traders have said that it may be more hesitant to
act in December for fear of disrupting market liquidity heading
A few weeks ago many traders and analysts had expected that
the Fed would be most likely to act at its March meeting.
The Fed bought $5.13 billion in notes due 2017 and 2018 on
Friday as part of its ongoing purchases.
Unemployment near 6 percent could force the Fed's hand in
coming months by making purchases politically unfeasible.
"It would be much harder for the Fed politically to continue
buying if they don't have unemployment at high levels," said
The Fed is seen as likely to stress its plans to hold rates
near record lows even as it begins to pare bond purchases, in an
effort to stem any dramatic yield rise that could otherwise
threaten the economic recovery.
But the drop in the unemployment rate brought it closer to
the 6.5 percent level that Fed officials have said would trigger
discussions over when to raise interest rates from their current
levels near zero.
Some economists think the central bank will lower that
threshold to convince markets that any rate hike is a long way
- Budget, Tax & Economy