NEW YORK (CNN/Money) -
Treasury prices surged Friday, with the 10-year note yield marking its largest one-day decline in 25 months, as a weak report on U.S. payrolls was seen postponing the day when the Federal Reserve might have to raise interest rates.
In currency trading, the dollar stemmed its slide against the euro and the yen.
Just before 3:15 p.m. ET, the benchmark 10-year note jumped 1-13/32 in price to 101-10/32 to yield 4.08 percent, down from 4.27 late Thursday. The 10-year note yield saw its steepest one-day decline since November 2001.
The 30-year bond surged 1-28/32 in price to 106-1/32 with a yield of 4.96 percent, down from 5.08 percent late Thursday.
The five-year note added 31/32 of a point to 100-30/32 for a yield of 3.04 percent, while the two-year note climbed 11/32 of a point to 100-13/32, yielding 1.65 percent. Bond prices and yields move in opposite directions. Short-term yields sank to their lowest levels since October.
Payrolls rose by a scant 1,000 in December, the government reported, well below forecasts for a gain of about 148,000 and a world away from whispers in the market predicting a rise of 200,000 or more. Furthermore, previous gains reported in November and October were revised down.
The unemployment rate did dip to 5.7 from 5.9 percent, but only because more people were leaving the labor force. The work week also showed a surprising fall, suggesting either lower production or a huge rise in productivity.
But the bond market took the data to mean a greatly reduced risk of interest rate hikes this year.
"The data are a disaster for the recovery story," Dominic Konstam, head of interest-rate strategy at CSFB, told Reuters. "It suggests that once the stimulus to consumption fades there won't be the hiring there to replace it."
"The market had been looking for the Fed to move in March or June, but these figures push that out well into the second half of the year and maybe into next year," he added.
There were also signs that core inflation, already at a four-decade low, could fall further. Average hourly earnings rose at their lowest annual rate since 1987, while the Economic Cycle Research Institute's (ECRI) leading indicator of inflation hit a 16-month low.
Bond traders consider inflation an enemy, as it erodes the value of their investments.
Just a few days ago Fed Governor Ben Bernanke warned that inflation was already too low for comfort and a further decline would be unacceptable for the central bank.
"That, combined with no job growth, makes it harder and harder for the Fed to pull the trigger in an election year," said Cary Leahey, senior U.S. economist at Deutsche Bank.
Other analysts took this reasoning a step further.
"The Fed's not going to move this year," declared Drew Matus, senior financial economist at Lehman Brothers. "In fact, a couple more jobs figures like today's and we could be talking '06 before they hike."
In the currency market, the dollar rose against the euro. The European currency hit another record high before stepping back to $1.2845 late Friday, down from $1.2765 Thursday.
The dollar bought ¥106.39, up from $106.18 late yesterday.
The Bank of Japan was believed to have intervened heavily overnight buying dollars for yen, just as it did early in the week, and traders assume much of this money will find its way into Treasurys.
Talk is the BOJ spent 1 trillion yen buying dollars Friday and around 3 trillion early in the week. If so, that equates to an astonishing $38 billion and, going on past history, a good chunk of that should end up in Treasury and other U.S. debt.
-- from staff and wire reports
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