Bond Gains Renew As Drumbeat To Friday’s Jobs Report Intensifies

(Bloomberg) -- The Treasuries market took another leg higher on Wednesday, as a slowdown in private-sector job creation further encouraged traders to bet on US interest-rate cuts ahead of broad labor-market data due Friday.

Some yields slumped to the lowest levels in three months, while activity in the options market showed an uptick in bets that profit most if the Federal Reserve’s policy rate falls to 2% by September.

“The more the numbers get weaker the more the market wants to give the Fed the room to move quickly,” said Michael Franzese, partner in fixed-income trading at MCAP LLC. 

Traders have a trifecta of job-market indicators to evaluate this week for signs the Fed will need to cut, culminating in the release of the Labor Department’s November employment report Friday. While Wednesday’s release from ADP Research Institute is no guarantee that government data will show the labor market is faltering, Tuesday’s Job Openings and Labor Turnover Survey — known as JOLTS — trailed all estimates in a Bloomberg survey of economists.

The 10-year yield slid 6 basis points to 4.1% and the 30-year’s sank 8 basis points to 4.21%, with both levels touching the lowest since Sept. 1. The drop in yields was aided by a decline in oil prices, with the benchmark US crude oil contract falling 4.1% to close below $70 a barrel for the first time since July. 

Yields declined in other major bond markets as well, with Australian 10-year yields sliding 6 basis points to 4.22% as trading kicked off on Thursday. Similar-dated UK yields fell below 4% on Wednesday for the first time since May. In euro-zone bond markets too, expectations for central-bank easing are fueling gains.

Private sector payrolls expanded less than economists estimated in November as measured by ADP Research Institute. Also Wednesday, the Labor Department said unit labor costs fell at a 1.2% rate in the third quarter, more than previously estimated.  

Fed policy makers meet next week for the last time this year. While no change is expected in their target for the federal funds rate following 11 increases from March 2022 to July 2024, they are scheduled to release quarterly forecasts that could alter market-implied expectations.

Those expectations have been gravitating toward more easing next year, beginning earlier, in response to weaker-than-forecast economic data. 

--With assistance from Rachel Evans.

(Updates yield levels, adds Australian bonds in sixth paragraph)

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