US yields slide after unexpected drop in private sector jobs

By Gertrude Chavez-Dreyfuss

U.S. Treasury yields fell on Wednesday after data showed a surprise decrease in private-sector payrolls in November, adding to worries about labor market weakness and cementing expectations of a rate cut by the Federal Reserve next week.

In early morning trading, the benchmark 10-year yield dipped 2.5 basis points (bps) to 4.063% US10Y, while the 30-year yield slipped 1.1 bps to 4.729% (US30YT=RR).

On the front end of the curve, the two-year yield, which reflects interest rate moves by the Fed, was down 2.8 bps at 3.488% (US2YT=RR).

Data showed that U.S. private employment decreased by 32,000 jobs last month after an upwardly revised 47,000 increase in October. Economists polled by Reuters had forecast private employment rising by 10,000 jobs after a previously reported 42,000 rebound in October.

Following the data, U.S. rate futures have priced in an 89% chance of a 25-bp cut next week, up from 83.4% a week ago, CME FedWatch showed.

"The third decline in four months for ADP private-sector payrolls could lock in a Fed rate cut next week," wrote Sal Guatieri, senior economist at BMO, in emailed comments after the jobs report.

"The Fed won't have the BLS's (Bureau of Labor Statistics) official November jobs report before next week's policy decision, but the ADP report might be all that it needs for the more dovish leaning Governors to counter some hawkish leaning regional Presidents to push through another rate cut."