US Treasury Bonds Rally: Weak Employment Data Had an Impact

US Treasury Bonds Rally

The recently released weak private sector employment data strengthened investors' expectations that the Federal Reserve will cut interest rates next month. This development has caused treasury bonds to gain value.

ADP Data Indicates Slowdown in Labor Market

According to data published by ADP Research, a slowdown in the US labor market was observed in the second half of October. During this period, companies laid off an average of 11,250 employees over a four-week period.

In the previous week's ADP report, it was expected that 42,000 new jobs would be created in October compared to the previous month. However, new data reflects changes in hiring trends.

Expectations for Fed Rate Cuts Increasing

Following the announcement of the data, investors in the swap markets began pricing in a 69% probability that the Fed will implement a 25 basis point interest rate cut next month. This figure was 63% before the data was released. The treasury bond market was closed due to Veterans Day; however, the yield on the 10-year bond fell by 4 basis points to 4.08%.

Analysts Assessing Economic Risks

Analysts at the Australia & New Zealand Banking Group have stated that the latest US data aligns with expectations for the Fed to gradually lower interest rates in upcoming meetings. However, analysts have expressed that downward risks have increased in various sectors of the US economy.

Bond investors focus on private sector data like ADP during periods when official data cannot be released due to government shutdowns. However, hopes that the government will reopen are raising expectations for the release of missing data.

The Importance of Economic Data Releases

White House National Economic Director Kevin Hassett has noted that the government shutdown will prevent some necessary economic data from being recorded in October. Hassett stated in an interview with CNBC, “The economic outlook will remain uncertain until data agencies are back in operation.”

Treasury Auctions Coming Soon

The US Treasury Department is expected to hold a $67 billion bond auction this week. In particular, 10-year and 30-year bonds will be closely watched by investors. Additionally, the comments from Fed New York President John Williams and other central bank officials will be closely monitored.