(Updated at 1500 EDT)
By Karen Brettell
June 5 (Reuters) - Benchmark U.S. 10-year Treasury
yields fell to a two-month low on Wednesday after a report
pointed to weaker-than-expected jobs growth ahead of Friday's
highly anticipated government employment report for May.
Yields have tumbled this week as softening economic data
boosts expectations that the Federal Reserve will make two 25
basis point cuts this year.
Now the market is positioned for nonfarm payrolls on
Friday to come in below economists' projections for 185,000 jobs
gains.
Traders say that the so-called whisper number, an
unofficial forecast, is for employers to add around 120,000
jobs.
Economists' projections are also widely dispersed and
include some expectations around the 110,000 to 130,000 area,
said Guy LeBas, chief fixed income strategist at Janney
Montgomery Scott in Philadelphia.
This "seems like a more likely landing point after a
little bit of softness we've had in hiring during the week,"
LeBas said.
The ADP Employment Report on Wednesday showed that
private payrolls increased by 152,000 jobs last month, below
economists' forecasts for 175,000 in jobs gains.
A survey on Tuesday also showed that job openings, a measure
of labor demand, were down 296,000 to 8.059 million on the last
day of April, the lowest level since February 2021.
Benchmark 10-year note yields were last down 5
basis points at 4.289% and got as low as 4.287%, the lowest
since April 1.
Two-year note yields fell 4 basis points to
4.731% and reached 4.726%, the lowest since May 16.
The inversion in the two-year, 10-year yield curve
was little changed on the day at minus 44 basis
points.
Yields briefly bounced on Wednesday after the Institute
for Supply Management said its non-manufacturing purchasing
managers index rose to 53.8 last month from 49.4 in April.
The ISM's business activity index shot up 10.3 points,
the largest rise since March 2021 and reached 61.2, the highest
level since November 2022.
The business activity is "really driving that whole
index higher," said Ellis Phifer, managing director of fixed
income research at Raymond James in Memphis, Tennessee.
"It's just a little bit of a fly in the ointment when
we're looking at data that's been coming in a little bit softer
than expected, especially ahead of the nonfarm payrolls coming
up on Friday," he said.
This week's bond rally has also been driven by relief
over an absence of new bond supply, after some Treasury auctions
last week saw soft demand.
"This week has really just been about a lack of supply
in the interest rate markets compounding a little bit of
negativity on the economy," said LeBas.
Next week's consumer price index (CPI) for May will also be
key in guiding Fed expectations in the near-term. It will come
on Wednesday morning before the Fed is due to complete its
two-day policy meeting, when Fed officials will update their
economic and interest rate projections.