Treasury Yields Fell Slightly Lower After ADP Jobs Report

Yields on government debt spanning the 2- to 30-year spectrum experienced a decline during Wednesday morning trading sessions subsequent to the release of data revealing that private-sector businesses had added a lesser number of jobs than initially anticipated in November.

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Specifically, the yield on the 2-year Treasury (BX:TMUBMUSD02Y) exhibited marginal variation, holding steady at 4.574%, in contrast to the previous day's rate of 4.575%. It is essential to note that yields exhibit an inverse relationship with prices. The 10-year Treasury yield (BX:TMUBMUSD10Y) observed a reduction of 2.6 basis points, settling at 4.145% from Tuesday afternoon's figure of 4.171%. Similarly, the 30-year Treasury yield (BX:TMUBMUSD30Y) experienced a decline of 3.6 basis points, reaching 4.270% as opposed to the late Tuesday rate of 4.306%.

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The impetus behind these market dynamics can be traced to data unveiled on Wednesday, indicating that businesses augmented payrolls by a mere 103,000 jobs in November, a figure significantly below the 128,000 jobs anticipated by economists surveyed by The Wall Street Journal. This revelation precedes the release of the nonfarm payrolls data for November, scheduled for Friday, although historical trends suggest that the ADP employment report might not always be a foolproof indicator of the official statistics.

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Treasury yields, hovering close to a three-month nadir, have experienced a substantial downturn in recent weeks. This downward trend has been fueled by optimism surrounding indications of a moderating labor market and diminishing inflationary pressures, which, if sustained, could potentially prompt the Federal Reserve to embark on interest rate reductions in the coming year.

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As of the current Wednesday juncture, the market is reflecting a 97.7% likelihood that the Federal Reserve will maintain interest rates within the range of 5.25% to 5.5% on December 13, as per the CME FedWatch Tool. Notably, the probability of a minimum 25-basis-point rate cut by March has surged to 61.9%, a substantial escalation from the 20.3% recorded just one month ago.

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Supplementary data unveiled on Wednesday disclosed that U.S. third-quarter productivity experienced a notable surge, registering a revised 5.2% annual rate, while the trade deficit widened to a three-month high of $64.3 million in October.

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Commenting on these developments, Chris Larkin, the managing director of trading and investing for E*TRADE from Morgan Stanley, pointed out, "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." Larkin underscored the uncertainty regarding the extent to which markets have already factored in a decelerating labor market and the potential reactions should Friday's data exceed expectations.