Treasuries made a remarkable recovery throughout the trading day on Wednesday after experiencing early session pressure. Initially seeing declines, bond prices rebounded significantly, moving decisively into positive territory. Consequently, the yield on the benchmark ten-year note, which inversely correlates with its price, decreased by 4.3 basis points, settling at 4.180 percent after peaking at 4.281 percent.
This resurgence in treasuries stemmed from renewed optimism about interest rate forecasts, fueled by the release of U.S. economic data that fell short of expectations. Earlier today, payroll processor ADP reported that private sector employment in the U.S. grew slightly below projections for November. According to ADP, private sector jobs increased by 146,000 in November, following a downward revision to 184,000 jobs in October.
Economists had anticipated a growth of 165,000 jobs in the private sector, compared to the initially reported surge of 233,000 jobs for the previous month. Additionally, the Institute for Supply Management released a separate report indicating that growth in the U.S. service sector decelerated more than predicted in November. The ISM reported that its services PMI dropped to 52.1 from 56.0 in October. Although a reading above 50 continues to signal growth, economists had forecast a milder decline to 55.5.
In light of these reports, CME Group's FedWatch Tool now suggests a 75.5 percent likelihood that the Federal Reserve will cut interest rates by 25 basis points later this month. Despite this, Fed Chair Jerome Powell emphasized in his remarks later in the day that the central bank will proceed cautiously with rate reductions, given the ongoing economic robustness.
Looking ahead, a report on weekly jobless claims is expected to garner some attention on Thursday. However, market activity may be somewhat muted in anticipation of the highly anticipated monthly jobs report set for release on Friday.
