Treasurys fall after jobs report

Treasurys edged lower Friday morning after the government reported that unemployment rose to a 25-year high.

The Labor Department said the economy lost 663,000 jobs in March, after a loss of 651,000 jobs in February. The unemployment rate rose to 8.5% - its highest level since November 1983.

March's tally was worse than the 658,000 job loss predicted by a consensus of economists surveyed by Briefing.com. But many analysts were expecting the report to be even worse.

The jobs report is a closely watched indicator of economic health. Bond prices typically rise when the economic outlook darkens as investors shy away from more risky assets.

But investors are also concerned that the supply of Treasurys will outpace demand as the government issues record amounts of debt to fund its economic rescue efforts. Bondholders are also worried about inflation, which erodes the value of fixed income assets.

Kevin Giddis, managing director of fixed-income at Morgan Keegan, said the market is approaching an "inflection point" where investors, concerned about rising inflation, no longer flock to Treasurys in response to signs of economic weakness.

"I wouldn't necessarily want to be short Treasuries yet," Giddis wrote in a research note. "But the longest-running flight-to-quality trade may be finally running out of steam."

Bond prices: The benchmark 10-year bond slipped 6/32 to 99 21/32, and its yield rose to 2.79% from 2.76% Thursday. Bond prices and yields move in opposite directions.

The 30-year long bond fell 1/32 to 98 6/32, and its yield rose to 3.6% from 3.59%.

The 2-year note slipped less than 1/32 to 99 31/32, and yielded 0.9%.

The 3-month yield held at 0.21%.

Lending rates: The 3-month Libor rate was 1.16%, down from Thursday's level of 1.17%, according to Bloomberg.com. The overnight Libor rate slipped to 0.27% from 0.29%.

Libor, the London Interbank Offered Rate, is a daily average of rates that 16 different banks charge each other to lend money in London.

Two credit market gauges narrowed Friday. The "Ted" spread fell to 0.95 percentage points from 0.96 points on Thursday. The narrower the Ted spread, the more willing investors are to take risks.

The Libor-OIS spread slipped to 0.94 percentage points from 0.95 points. The narrower the spread, the more cash is available for lending.