Treasury prices ended the week in retreat as traders lowered their expectations of another intermeeting cut in interest rates. The resulting rise in yields was more pronounced among longer-term securities.

The money market had been rallying for three consecutive days as the

Federal Reserve announced a half-point lowering in the

fed funds rate on Wednesday. Owing to a string of weak economic reports, a third of analysts had actually expected a 75 basis-point correction, and after seeing 50, began harboring hopes of another Fed move before the central bank's next monetary policy meeting on March 20. For its part, the Fed hinted in its press statement two days ago that it wouldn't hesitate to move boldly yet again to pace the economy.

However, the latest

employment report released this morning showed that

recession , even if a reality as some experts claim, is hardly widespread. The number of new nonfarm jobs created rose much more than expected, and though unemployment rose to its highest level in more than a year, this increase was driven by almost half a million workers being added to the total labor force.

As soon as this news was out, Treasuries began slipping and remained on the downside until the closing bell.

The benchmark 10-year

Treasury note fell 16/32 to 104 14/32, raising its yield 6.2 basis points to 5.154%.

The 30-year

Treasury bond fell 24/32 to 110 21/32, raising its yield 4.9 basis points to 5.512%.

"The market had become richly valued, especially on the front end," said Michael Cartine, Treasury analyst at

IFR/Thomson Financial

. "It had been a case of 'buy on the rumor, trade after the fact' in context of the

Federal Open Market Committee meeting, and if the employment report had come out very weak, it would have helped the market further. But that didn't happen, and so we saw a lot of flattening trades and an unwinding of the steeped yield curve."

Traders are now realigning their portfolios on anticipation that interest rates will be brought down to 5% or lower, but not before late March. And any reversal in the direction of consumer confidence, which remains very low at present, combined with benefits from probable forthcoming tax breaks, could push out the Fed move to midsummer.

For the shorter term, Cartine believes that an intermeeting interest rate cut, while not out of the question, is much less likely. "It will depend a lot on how the financial markets do. So far this year, we have had a healthy stock market and a very healthy credit market. The issuance of high-yield bonds is about the same as that of the entire last quarter," he said.

Cartine added that a number of people are looking at the almost $100 billion of corporate issuance in January. "There is a lot of money floating around, and most of it will go into new plants, staffing and other such investments and so help the economy."

"The one concern," he noted,"is that there is going to be some pressure on the market because of this refunding. The next few days will tell if the market is being supported by Fed action. But performance of the financial markets is really the key going forward."

Robert McTeer, president of the

Dallas Federal Reserve

, said in his remarks to the Richardson Chamber of Commerce that as long as the Fed continues to do what it has been doing, consumer confidence will regain the strength it had before November. He added that consequently the "virtuous cycle that the economy has been in will continue to be virtuous and not turn vicious."

McTeer, who is not a voting member of the FOMC, did admit, though, that the full percentage point cut in January, half of which came on Jan.3, is "pretty aggressive by Fed standards."

At the

Chicago Board of Trade

, the March

Treasury futures contract fell 23/32 to 104 13/32.

Economic Indicators

In economic news, the

employment report

(

definition |

chart |

source

) showed that the number of new jobs, excluding those in farm-related industries, increased dramatically in January, to 268,000 -- much higher than expected. Economists polled by

Reuters

had forecast only 83,000 new jobs. Still, the current number could well be revised significantly, as data for the first month of the year fluctuates considerably. (Indeed, the December numbers were noticeably revised, with new jobs for that month now estimated at 19,000, far lower than the 105,000 initially reported.)

Average hourly wages remained unchanged after having increased by 0.4% at the end of the year. They had been expected to grow by another 0.3%.

The unemployment rate rose to 4.2% in January, from 4% in December. This is the highest jobless rate since July 1999. Economists had been expecting 4.1%. The augmented unemployment rate, which includes those who are willing to work but are not actively looking for a job, rose to 7.1%, the highest level since March. The pool of available workers rose to 10.37 million in January from 10.19 million in December.

The

Future Inflation Gauge

(

definition |

chart ) slipped to 112.4 in January, its ninth consecutive decrease. This indicates minimal inflation fears.

Factory orders

(

definition |

chart |

source

) in December were up more than expected, growing at a rate of 1.1% rather than the anticipated 0.6%. However, excluding the key transportation sector that comprises the aircraft industry, monthly orders actually dropped 0.8%. The drop reflects slowing new auto sales and weak year-end retail sales. Over the past 12 months, the average overall number has plunged. It stands at 0.5%, sharply lower than the 12-month high of 16.3% in June.

Finally, the

Consumer Sentiment Index

(

definition |

chart ) is at its lowest level in more than four years, at 94.7. However, it was revised slightly upward through the second half of January from a preliminary reading of 93.6.

Currency and Commodities

The dollar was unchanged against the yen and rose against the euro. It lately was worth 115.62 yen. The euro was worth $0.9360, down from $0.9388. For more on currencies, see

TSC's

Currencies column.

Crude oil for March delivery at the

New York Mercantile Exchange

rose to $31.19 a barrel from $29.82.

The

Bridge Commodity Research Bureau Index

rose to 228.09 from 226.92.

Gold for March delivery at the

Comex

fell to $267.10 an ounce from $268.50.