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Signs of US labor market weakening push yields lower

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Government shutdown affecting economic outlook, data

availability

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Supreme Court decision on tariffs may influence Treasury

market

By Davide Barbuscia

NEW YORK, Nov 6 (Reuters) - U.S. Treasury yields fell on

Thursday due to concerns over a weakening U.S. labor market as

well as the prospect of more economic uncertainty caused by the

government shutdown in Washington and questions over the

legality of President Donald Trump's tariffs.

The U.S. government shutdown, the longest on record, has forced

investors to rely on private data in place of the Bureau of

Labor Statistics' monthly jobs report, which was due on Friday

but has been frozen by the shutdown. On Thursday, a batch of

private labor indicators pointed to a weakening economy, driving

Treasury yields lower and boosting expectations for Federal

Reserve interest rate cuts.

U.S. employers announced 153,074 job cuts in October, global

outplacement firm Challenger, Gray & Christmas said on Thursday.

That represented a 183% surge and the highest October total in

22 years, as companies slashed costs and embraced artificial

intelligence, signaling a potential shift toward more firings.

The Revelio Public Labor Statistics, a privately compiled

indicator of the labor market, showed the U.S. economy lost

9,000 jobs in October, predominantly driven by employment losses

in the government sector. The Chicago Fed meanwhile estimated

the U.S. jobless rate likely inched up to 4.4% in October, a

four-year high, as hiring slowed and layoffs rose.

"Given the fact that the jobs market has been in a little

bit of a lull here, dating back to May, if this is an indication

of the near-term direction, it's a warning for the markets,"

said Jim Baird, chief investment officer with Plante Moran

Financial Advisors, in reference to the Challenger jobs data.

The shutdown, now in its 37th day, added uncertainty to the

economic outlook, said Baird, as the longer it lasts, the higher

its likely impact on the economy. "Does the sentiment shift in a

more negative direction? Do consumers retrench further,

particularly if they're concerned about the overall labor market

situation? ... It has to be factored in the longer the shutdown

lasts."

Rates futures traders on Thursday assigned a 69% probability

that the Fed would cut rates by 25 basis points at its December

9-10 policy meeting, up from 62% on Wednesday, CME Group data

showed.

Benchmark 10-year yields dropped to 4.106% from

4.149% on Wednesday, while two-year yields declined

by nearly four basis points to 3.58%.

At the same time, despite market concerns over a weakening labor

market, Chicago Fed President Austan Goolsbee said the lack of

official data on inflation during the government shutdown

accentuated his caution about cutting rates further.

SUPREME COURT CONSIDERS TARIFFS CASE

Investors are also assessing the potential impact of a U.S.

Supreme Court decision against tariffs, one day after the court

heard arguments over Trump's unprecedented use of a law meant

for national emergencies to impose taxes on imported goods.

Lower revenue from tariffs could lead to wider government

budget deficits and more Treasury debt supply hitting the

markets, which would be negative for bonds. At the same time,

the prospect that tariffs may be permanently revoked could be

positive for Treasuries as it would remove a cause of inflation.

"Early indications from the U.S. Supreme Court indicate

skepticism over the legal standing of Trump's tariffs and the

obvious question is whether this is bond-bearish or bullish.

Yes, both," BMO Capital Markets analysts said in a note.