(Adds context, analyst quotes, graphic; updates market levels)

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Economic data erodes confidence in Fed rate cuts

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Treasury considers future increases in coupon debt issues

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U.S. Supreme Court hears arguments on Trump's tariffs

By Davide Barbuscia

NEW YORK, Nov 5 (Reuters) -

U.S. Treasury yields rose on Wednesday after data

showed continued U.S. economic resilience and a Treasury

refunding announcement indicated potential future increases in

long-dated debt issues.

Yields, which move inversely to prices, had declined

overnight because of safe-haven demand spurred by stock market

fears of an AI-fueled bubble. However, bond selling pressure

resumed in morning trading, lifting yields, as

better-than-expected data on jobs and the services sector eroded

market confidence in additional monetary easing by the Federal

Reserve.

The rise in yields gained momentum during the day, as the

U.S. Supreme Court began hearing arguments

on Wednesday over the legality of Donald Trump's sweeping

tariffs. The prospect of lower revenue from tariffs - taxes on

imported goods - could lead to wider government budget deficits

and more Treasury debt supply hitting the markets.

"The Supreme Court taking the oral arguments today reminds

everybody that this is still out there and it's pretty binary in

its impact," said Art Hogan, chief market strategist at B. Riley

Wealth.

Private employment increased by 42,000 jobs in October after a

smaller-than-initially reported decline of 29,000 in September,

the ADP National Employment Report showed on Wednesday.

Economists polled by Reuters had forecast private employment

would rise by 28,000 jobs.

The Institute for Supply Management said its nonmanufacturing

purchasing managers index rose to 52.4 last month from 50.0 in

September. Economists polled by Reuters had forecast the

services PMI climbing to 50.8. The services sector accounts for

more than two-thirds of U.S. economic activity.

"Traditional (economic) drivers like retail and professional

services are lagging ... nonetheless, we continue to see a

strong job market," said David Russell, global head of market

strategy at TradeStation. "The data is not necessarily bad

enough to trigger rate cuts," he added.

Rates futures traders assigned a 61% probability to a 25 basis

point rate cut by the Fed at its next policy meeting in

December, down from about 70% prior to Wednesday's data

releases, LSEG data showed late on Wednesday.

The ADP report was closely watched by investors because a U.S.

government shutdown - now the longest ever - has frozen monthly

employment reports produced by the Labor Department's Bureau of

Labor Statistics, seen as key gauges of U.S. economic health.

"The ADP employment data continue to point to a gradual

slowing in the labor market," said Matthew Martin, senior

economist at Oxford Economics. "We believe the Federal Reserve

provided enough support to the labor market with their two

back-to-back rate cuts to remain on hold at the next two

meetings," he said in a note.

Benchmark 10-year yields rose by nearly seven basis

points to 4.159%, while two-year yields rose by

almost five bps to 3.632%. Further out the curve, 30-year yields

rose to 4.738%, adding nearly seven bps on the day.

The Treasury Department on Wednesday said it expected to keep

its nominal coupon and floating rate note auction sizes steady

for at least the next several quarters, but was beginning to

consider future increases.

This added some upward pressure on long-term yields, pushing

the yield curve to steepen - meaning the premium of long-dated

yields over shorter ones increased. The closely watched curve

comparing two- and 10-year yield steepened to 52.8 basis points,

the steepest in over two weeks.

"On the margin it was a little bit hawkish compared to what

markets expected," said Jan Nevruzi, a rates strategist at TD

Securities, referring to the refunding announcement.

"We didn't really subscribe to the idea that they're going

to cut auction sizes, but there was definitely chatter of that

... In fact, they did a complete U-turn to the other direction

with the fact they're preliminarily considering increases to

future coupon and FRN auction sizes," he said.