The benchmark 10-year yield fell four basis points to 4.08% as trading in the cash market resumed after the Veterans Day holiday in the United States on Tuesday.
WASHINGTON: Treasuries rallied after a weak private payrolls report in the United States prompted traders to price in a higher chance of a Federal Reserve (Fed) interest-rate cut next month.
The benchmark 10-year yield fell four basis points to 4.08% as trading in the cash market resumed after the Veterans Day holiday in the United States on Tuesday. Futures on the bonds slipped after rallying in the New York session.
Swap markets see a 69% chance of a 25 basis point rate cut by the Fed next month, up from 63% on Monday.
That’s after data released by ADP Research showed the labour market slowed in the second half of October, compared with earlier in the month.
Recent US data “are consistent with the Fed continuing to reduce interest rates gradually at coming meetings,” analysts at Australia & New Zealand Banking Group, including Kishti Sen, wrote in a research note. Downside risks to many cohorts of the US economy are growing, they wrote.
Treasury investors have been looking at metrics like those from ADP closely in the absence of official data due the longest US government shutdown in history.
However, expectations that the government may reopen soon are spurring hopes that data including the jobs reports for September and October will also be released.
The Department of the Treasury’s auctions this week are also on the radar for investors. A US$58bil sale of three-year notes on Monday that met stellar investor demand, with another US$67bil of 10-year and 30-year notes combined also expected to be auctioned this week.
Amid the heavy supply schedule, Westpac Banking Corp recommends trades that profit from a rise in longer-dated yields relative to shorter tenors amid concerns over the US fiscal outlook.
“This week’s quarterly refunding auctions will keep upward pressure on yields,” Damien McColough and Uma Choudhury, strategists at the bank, wrote in a research note. However, fears of slower economic activity due to the government shutdown would cap any rise in yields, they wrote. — Bloomberg
