The yield on the 30-year Treasury bond briefly surpassed 5% on Wednesday amid political chaos in Washington, but finished off its 16-year high after U.S. private-sector employment data missed expectations.
What happened
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
slipped 10 basis points to 5.048% from 5.148% on Tuesday. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
dropped 6.6 basis points to 4.735% from 4.801% Tuesday afternoon. Tuesday’s level was the highest close since Aug. 8, 2007, according to 3 p.m. Eastern figures from Dow Jones Market Data. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
fell 6 basis points to 4.876% from 4.936% late Tuesday after briefly touching 5.015%. The 30-year rate finished Tuesday’s session at its highest since Sept. 20, 2007.
What drove markets
Data released on Wednesday showed that U.S. private-sector employment rose by a tepid 89,000 in September, the smallest increases in 2½ years. Economists polled by The Wall Street Journal had forecast a gain of 150,000.
Yields broadly fell after the report, which suggested the labor market is softening, but isn’t an accurate predictor of the official September jobs report being released on Friday.
U.S. government bonds have been under severe pressure in the past two weeks after recent better-than-expected economic data encouraged Federal Reserve officials to continue their hawkish rhetoric, pencil in another interest rate hike this year, and keep borrowing costs elevated for longer. Job openings data for August, released on Tuesday, exacerbated those fears.
As European traders got to their desks early Friday, yields were initially propelled higher by concerns about the first-ever ousting of the speaker of the U.S. House of Representatives.
The 10-year Treasury yield touched almost 4.9% and the 30-year U.S. bond yield briefly surpassed 5%. The rate on Germany’s 10-year note
BX:TMBMKDE-10Y,
the eurozone benchmark, also briefly rose above 3% or one of its highest levels since 2011.
Most yields then eased after their initial spikes. However, Ed Moya, a senior market analyst for the Americas at OANDA Corp., said that the resilience of the U.S. economy and a general lack of buyers in the bond market “means market swings will remain violent, especially once the DC drama intensifies.”
In other data released on Wednesday, an ISM barometer of business conditions at service-oriented companies such as retailers and health-care providers fell slightly in September to 53.6% — indicating some softening in the U.S. economy.
What analysts are saying
“The ADP employment report disappointed expectations, showing that the private sector added 89,000 jobs in September,” said economist Daniel Silver of JPMorgan Chase & Co. “On the surface the ADP report suggests that the BLS data on Friday could disappoint the current expectations, although the ADP report has not been a reliable predictor of the BLS data from month to month (granted last month the August estimates were pretty close). We continue to forecast that the BLS report will show nonfarm employment up 175,000 in September.”
“Leaving aside the loose relationship between the ADP and BLS data, the ADP figures do show a moderating trend for job growth in recent months, which we think is very roughly consistent with what should be going on in the labor market,” Silver wrote in a note.
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