10-year yields hit almost three-week low as job openings fall

Benchmark US Treasury yields fell to an almost three-week low on Tuesday after data showed that job openings fell more than expected in April, before highly anticipated jobs data on Friday may give fresh clues on Federal Reserve policy.

Job openings, a measure of labor demand, were down 296,000 to 8.059 million on the last day of April, the lowest level since February 2021.

The report “shows softening, or increasing balance, in the labor market, which is what the Fed wants to see and what the market wants to see,” said Vail Hartman, US rates strategist at BMO Capital Markets in New York.

Treasury yields have tumbled as investors bet that the US central bank will begin cutting rates as the economy cools.

This week’s main US economic release will be jobs data for May due on Friday, which is expected to show that employers added 185,000 jobs in May, according to economists polled by Reuters. It comes after April’s report showed that jobs growth slowed more than expected, with 175,000 jobs gains, the fewest in six months.

Traders are preparing for an even weaker jobs report than economists expect and “that’s kind of what’s feeding into some of this price action,” said Dan Mulholland, head of rates – trading and sales, at Crews & Associates in New York.

“You’ve seen a few cracks lately in terms of the economic data and what that translates into … more easing,” Mulholland said. “People are fearing missing out on the easing trade, they kind of want to be in front of it.”

Benchmark 10-year note yields fell 7 basis points to 4.332% and got as low as 4.314%, the lowest since May 16.

Two-year note yields fell 5 basis points to 4.773% and reached 4.749%, also the lowest since May 16.

The inversion in the two-year, 10-year yield curve deepened 2 basis points to minus 43 basis points.

Personal consumption expenditures (PCE) on Friday showing that US inflation tracked sideways in April and a report on Monday showing that US manufacturing slowed for a second straight month in May have added to the bond rally.

The drop in yields in response to Monday’s manufacturing data may indicate that there is “more sensitivity to the downside in yields,” said Zachary Griffiths, senior strategist at CreditSights in Charlotte, North Carolina.

“That’s been an indicator that’s been very negative for almost two years now,” Griffiths said, adding that there may be “fatigue to the idea that rates need to stay high or higher than they are right now.”

Data on Tuesday also showed that new orders for US-manufactured goods increased for a third straight month in April. Other releases this week will include the ADP National Employment report and service sector data for May, both due on Wednesday.

Next week’s consumer price index (CPI) for May will then be critical for guiding Fed expectations in the near term. It will come on Wednesday morning before the Fed is due to complete its two-day policy meeting, when Fed officials will update their economic and interest rate projections.

(Reporting by Karen Brettell; Editing by Will Dunham and Nick Zieminski)