Yields fall as ADP jobs gains miss expectations

NEW YORK – US Treasury yields fell and interest rate-sensitive two-year yields reached a 15-month low on Thursday after ADP jobs data showed employers added fewer jobs than anticipated in August, before Friday’s government jobs report.

Private payrolls increased by 99,000 jobs, the smallest gain since January 2021, after rising by a downwardly revised 111,000 in July, the ADP National Employment Report showed.

Economists polled by Reuters had forecast private employment would advance by 145,000 positions.

The report was consistent with a still-solid labor market, said Thomas Simons, senior US economist at Jefferies in New York.

“When you look at slowing payroll growth, slowing job openings, slowing claims, and steady wage growth, that means that the labor market has settled into a better balance that is a good place for most workers,” Simons said.

“I don’t think that we are seeing the early stages of some sort of unraveling or rapid deterioration in the labor market, and unless we do, I still think that the market is pricing in way too much easing from the Fed, whether that be in terms of pace or total number of cuts,” he added.

Traders are pricing in a 41% probability of a 50 basis point cut at the Federal Reserve’s Sept. 17-18 meeting, and 59% odds of a 25 basis point reduction, according to the CME Group’s FedWatch Tool.

The US central bank is also expected to cut rates at each meeting through at least June, with 238 basis points of cuts priced in by the end of 2025.

Interest rate-sensitive two-year note yields were last down 1.6 basis points at 3.754% and earlier reached 3.713%, the lowest since May 2023. Benchmark 10-year note yields fell 3.2 basis points to 3.736% and got as low as 3.721%, the lowest since Aug. 4.

The yield curve between two- and 10-year yields was at minus 2 basis points, after turning positive on Wednesday for the first time since Aug. 5.

Yields have fallen as traders price in the possibility of a US recession even as many economists see the economy avoiding a downturn.

Friday’s jobs report is expected to show that employers added 160,000 jobs during August, up from 114,000 in July, according to the median estimate of economists polled by Reuters. The unemployment rate is anticipated to ease to 4.2%, from 4.3%.

“For the US recession narrative to re-emerge among economists a non-farm payrolls number perhaps below 125k would be needed along with an unemployment rate at 4.3% or higher,” JPMorgan analysts including Nikolaos Panigirtzoglou said in a report on Thursday.

Other data on Thursday showed that the number of Americans filing new applications for jobless benefits declined last week as layoffs remained low.

US services sector activity was also steady in August, though employment gains slowed.

(Reporting By Karen Brettell; Editing by Barbara Lewis and Jonathan Oatis)