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ADP shows smallest job gain since January 2021

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Traders price in 45% chance of 50 bps cut at September

meeting

By Karen Brettell

NEW YORK, Sept 5 (Reuters) - U.S. 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 keenly awaited

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 after a previously reported

gain of 122,000.

The report was consistent with a still solid labor market,

said Thomas Simons, senior U.S. 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.

Interest rate sensitive two-year note yields were

last down 4.9 basis points at 3.721%, the lowest since May 2023.

Benchmark 10-year note yields fell 3.7 basis points

to 3.731%, the lowest since Aug. 4.

The yield curve between two- and 10-year yields

was at 0.80 basis point, after turning positive

on Wednesday for the first time since Aug. 5.

Yields have fallen as traders price in aggressive interest

rate cuts by the Federal Reserve, even as many economists see

the economy avoiding a recession.

Traders are pricing in a 45% probability of a 50 basis point

cut a the Fed's Sept. 17-18 meeting, and 55% odds of a 25 basis

point reduction, according to the CME Group's FedWatch Tool.

The U.S. central bank is also expected to cut rates at each

meeting through at least June, with 242 basis points of cuts

priced in by the end of 2025.

Other data on Thursday showed that the number of Americans

filing new applications for jobless benefits declined last week

as layoffs remained low.

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%.,