By Min Zeng
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--A dismal jobs report Friday drove investors back into safe-haven Treasurys after Thursday's one-day reprieve, but better-than-expected service-sector data kept yields from blowing too far below the 3.0% mark.
The price swings over the past two sessions show two things: Disappointing economic data will continue supporting the market, and the overbought sector has increasingly become easy prey to bouts of profit-taking.
Fears that the U.S. economic recovery is losing steam have been magnified during the past month by a steady stream of disappointing data, pushing investors to pile into Treasurys.
That sent benchmark 10-year yields to six-month lows of 2.937% earlier this week--the crummy data helped push yields down eight of the past 10 days. In fact, just four months ago yields stood at 3.77%.
There has been "a long way in the decline in yields in a relatively short period of time," said Mary Ann Hurley, vice president of trading in Seattle at D.A. Davidson & Co. "So the price pullback could encourage buyers who missed out of the recent rally to get in."
In late afternoon trading, the benchmark 10-year note was 9/32 higher to yield 2.995%. Bond yields move inversely to their prices.
The two-year note was 2/32 higher to yield 0.433%. The 30-year bond was 13/32 higher to yield 4.229%.
Interest rate futures traders cut bets on the first increase in the policy rate--which the Fed has held near zero for more than two years--during the first half of 2012. The yield on the two-year note, the most sensitive to changes in the Fed's rate outlook, earlier fell to as low as 0.413%, the weakest level since November.
"The market is in overbought territory on a short-term basis, so it will have hiccups along the way, said Ward McCarthy, chief financial economist within the fixed-income group at Jefferies & Co. But "fundamental news remains very supportive."
Hurley said the 10-year note's yield will trade between 2.95% and 3.25% in the next couple of months.
Barclays Capital now expects the 10-year yield to end this year at 3.25%, 50 basis points lower from a previous call. Bank of America/Merrill Lynch cut its yield call from 4% to 3.6%.
US Swap Spreads Mixed
The U.S. two-year swap spread, which measures the differential between the two-year swap rate and two-year Treasury yield and is a main gauge of credit risks, was unchanged at 19.75 basis points. The 10-year swap spread was 0.25 basis point wider at 12.25 basis points.
