Bond Report: Ten-year Treasury yield remains lower after decline in private-sector payrolls for January

The yield on the Treasury 10-year note remained lower Wednesday after Automatic Data Processing reported that U.S. private-sector payrolls dropped in January by the most since the start of the pandemic.

Meanwhile, San Francisco Fed President Mary Daly said in an exclusive interview with MarketWatch that the U.S. central bank can move gradually away from its ultra-easy monetary policy stance without derailing the economic expansion.

What are yields doing?

The yield on the 10-year Treasury note TMUBMUSD10Y, 1.772% was 1.753%, down from 1.799% at 3 p.m. Eastern on Tuesday.
The 2-year note yield TMUBMUSD02Y, 1.161% was 1.154%, compared with 1.165% on Tuesday afternoon.
The yield on the 30-year Treasury bond TMUBMUSD30Y, 2.103% was 2.075% versus 2.124% late Tuesday.

What’s driving the market?

Yields showed only a modest reaction immediately after ADP reported that privately run U.S. businesses reduced employment by 301,000 jobs in January, the worst reading since the start of the pandemic. Economists surveyed by The Wall Street Journal had forecast a 200,000 gain.

The ADP figure is watched for clues to the strength of official jobs data, though economists note that it’s often not been a reliable guide, particularly in recent months. The Labor Department will release the January jobs report on Friday morning, with economists looking for overall payrolls to rise by 150,000.

Labor market data has been in focus this week as investors gauge how aggressive the Federal Reserve will be in raising interest rates and in otherwise pulling back on monetary stimulus. Daly, who is not a voting member of the Fed’s policy-setting committee this year, said on Wednesday that she expects to fully support an initial benchmark interest-rate hike in March.

Separately, the U.S. Treasury, detailing its regular quarterly refunding plans, announced Wednesday it would sell $110 billion in notes and bonds next week. That’s down from $120 billion last quarter. The department will auction $50 billion of 3-year Treasury notes on Feb. 8, $37 billion of 10-year notes on Feb. 9, and $23 billion of 30-year bonds on Feb. 10.

What are analysts saying?

The ADP reading”highlights the potential for omicron to distort Friday’s BLS data and we’ll note the difference in data collection methods will skew Friday’s official jobs figures lower, if anything,” said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery, in a note. “That said, investors understand that this is only a temporary impact and will presumably be reversed in February.”