A stronger-than-expected

productivity and unit labor costs

report and a coupon pass by the


have lifted Treasury prices off their early-morning lows.

Down as much as 23/32 at 8:25 a.m. EST following a rout in the Japanese government bond market and weakness in European debt markets, the benchmark 30-year Treasury bond lately was down 1/32 at 95 2/32, leaving its yield unchanged at 5.59%. The more actively traded 10-year note was up 6/32, dropping its yield 3 basis points to 5.24%.

"Sentiment's getting a little better all in all," said Bill Kirby, co-head of government bond trading at

Prudential Securities


Traders were encouraged by the fact that at their worst levels of the morning, Treasuries didn't drop lower than their lowest levels of Friday afternoon, when those who'd owned the long bond going into the February

employment report

took their profits, said John Canavan, Treasury market analyst at

Stone & McCarthy Research Associates

in Princeton.

Add to that the coupon pass and the productivity report, he said, and "the combination was more than enough to boost this market off its lows and back into positive territory."

In a coupon pass, the Fed buys Treasuries on the open market in order to inject enough liquidity into the banking system to keep the fed funds rate on target. In today's, the central bank bought $811 million of securities maturing between 2022 and 2027.

As for productivity, the

Labor Department

revised its estimate of how much nonfarm productivity increased during the fourth quarter to 4.6% from 3.7%. Based on the upward revision to fourth-quarter

gross domestic product

, economists surveyed by


had forecast a revision to 4.2%.

In the same report, unit labor costs, which are essentially labor costs adjusted for changes in productivity, were found to have dropped 1.1%, vs. an preliminary estimate of a 0.2% decrease.

"The report itself is very bullish," Canavan said. "What's it's showing is that as long as we can see tremendous gains in productivity, it will allow the economy to grow while keeping a lid on inflation at the same time."

The early pressure on prices came primarily from Japan, where a rise in government bond yields caused U.S. yields to rise in sympathy. JGB yields rose after

Bank of Japan


Masaru Hayami

said he expected them to. The benchmark 10-year JGB yield rose to 1.70% from 1.63%.