(Bloomberg) — Treasury yields declined to the lowest levels in nearly a month for most tenors after weaker-than-expected gauges of job creation and service-sector activity strengthened traders’ conviction that the Federal Reserve will resume cutting interest rates this year.
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Two- to 10-year yields reached the lowest levels since May 9 after the ISM Services gauge for last month declined unexpectedly, signaling contraction in the sector for the first time since last June. The bond market added to earlier gains unleashed by ADP Research data showing that private-sector job growth was the weakest in two years. The US government’s broader employment data for May, to be released Friday, is expected to show deceleration also.
The ADP data drew a swift response from US President Donald Trump, stating in a social media post that the Fed needs to cut interest rates, a demand he’s made repeatedly.
“This is a leading indicator into what we think is going to happen in Friday payrolls,” Jim Caron, a chief investment officer at Morgan Stanley Investment Management, said on Bloomberg Television. “It does make the Fed probably have to step up and look. The thing they are worried about the most is a softening in the jobs market.”
Treasury yields across the maturity spectrum declined by six to nine basis points, the benchmark 10-year note’s to 4.37%.
Traders of swap contracts that predict Fed rate changes priced in higher odds of two quarter-point cuts by year-end, in October and December. The possibility of a move in September increased to around 90%.
Ahead of Wednesday’s data, traders were ramping up bets against Fed rate cuts this year. Expectations rate have waxed and waned since December, when the central bank did the last of three cuts totaling 100 basis points, setting its target band for the US overnight lending rate at 4.25%-5%. The prospect that the Trump administration’s tariffs agenda will reignite inflation has curbed wagers on additional rate cuts, despite signs of slowing economic growth.
Friday’s jobs report is forecast to show employers added 130,000 workers in May, following an April increase of 177,000. The unemployment rate is predicted to remain steady at 4.2%, according to a Bloomberg survey of economists.
