10-year Treasury yield edges up toward 4% after ADP data, weekly jobless claims

What’s happening

• The yield on the 2-year Treasury note
  BX:TMUBMUSD02Y
  was up 6.3 basis points at 4.379% from 4.316% on Wednesday. Yields move in the opposite direction to prices.

• The yield on the 10-year Treasury note
  BX:TMUBMUSD10Y
  rose 8.2 basis points to 3.987% from 3.905% on Wednesday, after touching an intraday high of 3.992% on Thursday.

• The yield on the 30-year Treasury bond
  BX:TMUBMUSD30Y
  jumped 7.9 basis points to 4.134% from 4.055% on Wednesday.

What’s driving markets

In U.S. economic data released on Thursday, ADP’s private-sector employment report showed that businesses added a solid 164,000 new jobs in December. The larger-than-expected increase was the biggest in four months, and a sign that the labor market remains robust.

The ADP data came ahead of Friday’s nonfarm payrolls report for December, although it’s not always seen as a reliable harbinger of the government figures.

See: Holiday hiring boom or bust? December jobs report to tell us.

Meanwhile, initial jobless benefit claims dropped to an almost three-month low of 202,000 in the final week of 2023, declining from a revised 220,000 in the prior week.

On Thursday, fed funds futures traders continued to pull back slightly on the chance of a 25-basis-point rate cut from the Federal Reserve by March. They have priced in a 62.1% chance of such a move, down from 64.7% a day ago, and now see a 33.6% likelihood of no action in March, according to the CME FedWatch Tool. That’s after factoring in a 93.3% likelihood of no action on Jan. 31, which would keep the fed-funds rate between 5.25%-5.5%.

The minutes of the Federal Reserve’s December policy meeting, published Wednesday, were considered by analysts to be less dovish than investors had hoped, with policymakers giving little indication the central bank is likely to reduce interest rates soon.

What analysts are saying

“As we saw last month, the ADP jobs number doesn’t always point in the same direction as the government’s monthly jobs report. But along with a softer-than-expected weekly jobless claims total, the upside surprise in ADP suggests the labor market is still on solid ground,” said Chris Larkin, managing director of trading and investing for E-Trade from Morgan Stanley.

“If tomorrow’s numbers show the same kind of strength and the economy keeps rolling along, it’s fair to wonder why the Fed would be in a rush to cut rates,” Larkin wrote in an email.