TREASURIES-US yields drop after weak jobs, services data

Updates to afternoon US trading

By Chuck Mikolajczak

NEW YORK, June 4 (Reuters) – U.S. Treasury yields fell sharply on Wednesday, after labor market data came in weaker than expected, while a separate report on the services sector unexpectedly showed contraction.

The ADP National Employment Report showed private payrolls increased by 37,000 jobs last month, well short of the 110,000 estimate of economists polled by Reuters, after a downwardly revised rise of 60,000 jobs in April, sending yields lower.

Yields then extended their declines after the Institute for Supply Management said its non-manufacturing Purchasing Managers Index dropped to 49.9 last month, below the 52.0 estimate of economists polled by Reuters. The reading was the first below the 50 threshold, which indicates contraction of the services sector, and the lowest reading since June 2024.

In addition, the ISM’s measure of prices paid for services inputs rose to 68.7, the highest level since November 2022, from 65.1 in April.

“It still doesn’t seem clear that it’s time to cut rates yet, there’s still too much uncertainty, too many unknowns,” said JoAnne Bianco, partner and senior investment strategist at BondBloxx Investment Management in Chicago.

“We haven’t actually seen the tariffs really translate into what’s happening in terms of inflation.”

The yield on the U.S. 10-year Treasury note US10YT=TWEB fell 9.5 basis points to 4.365% after dropping to 4.349%, its lowest since May 9, and was on pace for its fourth decline in five sessions.

Labor market data is also expected throughout the week, culminating in Friday’s government payrolls report.

Markets have been volatile since U.S. President Donald Trump announced a slew of tariffs on countries around the globe on April 2, only to pause some and declare new ones, with the 10-year yield touching a 3-month high of 4.629% on May 22.

In the wake of the ADP report, Trump again called for Federal Reserve Chair Jerome Powell to lower interest rates in a social media post.

The yield on the 30-year bond US30YT=TWEB shed 9.7 basis points to 4.886%.

Washington doubled tariffs on imported steel and aluminum to 50% on Wednesday, the same day by which Trump had wanted trading partners to make their best offers to avoid other import levies from taking effect in early July.

Trump is expected to speak with Chinese leader Xi Jinping, days after Trump accused China of violating a deal to roll back tariffs and trade restrictions.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 48.6 basis points.

Many Federal Reserve officials have indicated a patient approach to determining the effect the levies may be having on prices, although they have also indicated rate cuts may still be possible this year.

Markets are pricing in a roughly 75% chance of the first cut of at least 25 basis points from the central bank this year at its September meeting, according to LSEG data.

The two-year US2YT=TWEB U.S. Treasury yield, which typically moves in step with interest rate expectations, declined 8 basis points to 3.877% after hitting a session low of 3.858%, its lowest since May 9.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities US5YTIP=TWEB was last at 2.336% after closing at 2.389% on Tuesday.

The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.307%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Chuck Mikolajczak
Editing by Rod Nickel)

((charles.mikolajczak@tr.com; @chuckmik.bsky.social;))