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Treasury yields finished mixed on Wednesday, with long-dated rates slipping to their lowest since August, after data showed private-sector businesses added fewer jobs than expected last month.
What happened
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
rose 2.6 basis points to 4.601% versus 4.575% on Tuesday. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
slipped 5 basis points to 4.121% from 4.171% Tuesday afternoon. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
dropped 8.2 basis points to 4.224% from 4.306% late Tuesday. - Wednesday’s levels were the lowest for the 10- and 30-year rates since Aug. 31, based on 3 p.m. Eastern time figures from Dow Jones Market Data.
What drove markets
Data released on Wednesday showed that businesses added only 103,000 jobs in November, according to paycheck company ADP. That’s below the 128,000 jobs that had been expected by economists polled by The Wall Street Journal.
The report came ahead of Friday’s nonfarm payrolls data for November, though it isn’t considered a reliable guide to the government figures.
Long-dated Treasury yields were at more-than-three-month lows on Wednesday after having dropped sharply in recent weeks on hopes that evidence of a cooling labor market and easing inflation will allow the Federal Reserve to start cutting interest rates next year.
As of Wednesday, markets were pricing in a 97.7% probability that the Fed will leave interest rates unchanged between 5.25%-5.5% on Dec. 13, according to the CME FedWatch Tool. The chance of at least a 25-basis-point rate cut by March was seen at 60.2%, up from 20.3% a month ago.
In other data on Wednesday, U.S. third-quarter productivity surged by a revised 5.2% annual rate, and the trade deficit widened to a three-month high of $64.3 million in October.
What analysts are saying
“While ADP employment isn’t a reliable predictor of the government’s monthly jobs data, today’s weaker-than-forecasted number may set up expectations for Friday’s jobs report to come in soft for a second month in a row — especially after the surprising drop in job openings reported on Tuesday,” said Chris Larkin, managing director of trading and investing for E-Trade from Morgan Stanley.
“What we don’t know is how much the markets have already priced in a slowing labor market, or how they will react if Friday’s data comes in stronger than anticipated,” Larkin said in an email.
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