Treasury prices sink as prospect for more Fed rate cuts dim

NEW YORK — Treasury prices tumbled Friday after the government's payroll report came in better than expected, raising speculation that the Federal Reserve will stop lowering interest rates.

The central bank has slashed rates by 3.25 percentage points since last September, with the most recent reduction a quarter point cut on Wednesday. A growing number of economists believe the Fed's rate-cutting campaign might be nearing an end, and the latest government report only lent credence to that theory.

The Labor Department said the nation's employers cut far fewer jobs than expected last month, stirring optimism about the buoyancy of the economy. And, if the central bank stands pat at future meetings, that would help revive the sagging dollar and combat inflation.

This would make government debt, which is considered a safe investment during times of uncertainty, less attractive. Investors sent stocks sharply higher after the report, although they collected profits toward the end of the session.

"We had a crescendo of panic that reached its peak in the middle of March, right around the time of the Bear Stearns takeover," said Jay Mueller, an economist at Strong Capital Management. "Since then the fear in the market has ebbed and the Treasury market has sold off."

However, Mueller advised against counting out a rebound in Treasury prices as Wall Street digests more earnings and economic reports. "I feel we'll get more bad news during the quarter and that will make Treasurys look more attractive," he said.

The benchmark 10-year Treasury note fell 19/32 to 97 7/32 and yielded 3.84 percent, up from 3.77 percent late Thursday, according to BGCantor Market Data. Prices and yields move in opposite directions.

The 30-year long bond fell 28/32 to 97 4/32 and yielded 4.55 percent, up from 4.49 percent late Thursday.

The 2-year note, the most sensitive to interest rate cuts because of its short duration, fell 4/32 to 99 13/32 and yielded 2.44 percent, up from 2.36 percent late Thursday.

The fact that employers cut 20,000 jobs in April was a relief to Wall Street, which had been expecting payrolls to decrease by 70,000 jobs. This marked the fourth straight month of job losses, but the data signaled that perhaps the economy might be resisting falling into recession.

Meanwhile, the Fed said Friday it will work with European central banks to expand a series of efforts to deal with the global credit crisis. The central bank will boost the amount of emergency reserves it supplies to U.S. banks to $150 billion in May, up from the $100 billion it supplied in April.

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