Treasury prices rose, pushing yields lower, Thursday after the weaker-than-expected private sectors payrolls number, suggested a softer number in the official jobs report on Friday.
The 10-year Treasury note yield TMUBMUSD10Y, -0.13% slipped 2.5 basis points to 2.877%, retreating from its three-week high. The 30-year bond yield TMUBMUSD30Y, +0.04% fell 2 basis points to 3.054%, while the 2-year note rate TMUBMUSD02Y, +0.00% shed 1.2 basis points to 2.641%. Bond prices move in the opposite direction of yields.
The ADP employment data showed private sector payrolls fell to 163,00 in August from 217,00 the previous month, suggesting the official nonfarm payrolls number could also see a similar drop. Economists polled by Econoday had expected 182,000 new jobs. Analysts note, however, that the ADP data are often a less-than-perfect guide to the nonfarm payrolls number.
“That ADP number was a lot weaker than many people thought. You are getting more and more short-covering ahead of the U.S. jobs report,” said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities. He suggested traders were unwinding their short positions to avoid being caught by an unexpected surprise in Friday’s employment data.
Economists will also key into the wage data in the jobs report, searching for signs that low unemployment is beginning to budge inflation higher.
In other economic data, initial jobless claims for the week ending Sept. 1 came in at 203,000, a 49-year low. Second-quarter productivity was left unchanged at 2.9%. While the Institute for Supply Management’s services index for August jumped to 58.5 from 55.7 in July, a sign that growth may not softening soon.
The solid growth suggests an economic backdrop ripe for further rate increases. New York Federal Reserve President John Williams said low unemployment and moderate inflation is as “good as it gets” for the central bank, which is gradually increasing rates at a pace of one hike per quarter.
Putting pressure on Treasurys this week, analysts expect a wave of corporate bond supply that could influence trading for government paper. Ahead of corporate debt sales, underwriters will sell Treasurys to minimize unexpected changes in interest rates, while money managers will free up their inventory, to make way for the new bonds.
Cigna will sell $23.5 billion of bonds to finance its purchase of Express Scripts, which would make it the second-largest corporate debt sale this year, according to CreditSights. The Justice Department is reportedly close to approving the acquisition.
“The big driver of the bond market is going to be corporate bond supply this month,” said di Galoma.