US 10-year yields hit three-month lows on concerns for weak jobs report

Benchmark 10-year Treasury yields fell to three-month lows on Wednesday as investors priced for the possibility that Friday's highly anticipated jobs report for November will disappoint, after ADP data showed jobs growth coming below economists' expectations.
 

Private payrolls rose by 103,000 jobs last month, the ADP National Employment Report showed on Wednesday, below forecasts for 130,000 in jobs gains.
 

Friday's payrolls report for November is expected to show that employers added 180,000 jobs during the month, according to the median estimate of economists polled by Reuters.
 

The drop in longer-dated yields suggests that "this bond market is expecting a weak payrolls number," said Padhraic Garvey, regional head of research, Americas, at ING.
 

However, the pace of the recent yield declines also indicates that the repricing may be overdone in the short-term.
 

Garvey noted that while he does expect yields to decline as the U.S. economy weakens, "it just seems to have happened very, very quickly ahead of a pivotal payrolls number that, if it comes in as economists expect - it means we don't have a labor market recession. And if we don't have a labor market recession, there isn't any urgency for the Fed to pivot." Fed funds futures traders are pricing in a more than 50% probability that the Fed will begin cutting rates in March, and see 127 basis points in rate reductions by December 2024.
 

Yields also fell on Tuesday after data showed that U.S. job openings fell to more than a 2-1/2-year low in October.

Benchmark 10-year yields fell as low as 4.136%, the lowest since Sept. 1. They have tumbled from a 16-year high of 5.021% on Oct. 23.
 

Two-year yields fell to 4.574% but are holding the 4.540% level reached on Friday, which was the lowest since June 13.

The yield curve between two-year and 10-year notes reached minus 45 basis points, the most inverted since Nov. 28.

While Friday's jobs report is likely to set the near-term direction of bond yields, other factors next week may also impact market moves.
 

Fed officials are due to give their updated economic and interest rate projections at the conclusion of their Dec. 12-13 policy meeting.
 

Demand for U.S. government bonds will also be tested when the Treasury sells three-year, 10-year and 30-year debt.

Consumer price inflation data for November is also due on Tuesday.