(Bloomberg) -- US Treasuries are sliding after US companies added more jobs than expected last month, sending a mixed signal to traders who are watching the labor market for signs the Federal Reserve needs to aggressively cut interest rates.
Bonds were lower Wednesday ahead of the jobs data as investors slightly pared back their expectations for another half-point rate cut this year in response to private payroll data that showed an increase of 143,000 in September. Yields moved higher by three to seven basis points across the curve.
Traders are pricing in about 33 basis points worth of easing when the Fed next announces its rate policy in November, implying a slightly lower — but still solid — chance that officials opt for a second-straight half-point cut. They see some 69 basis points of reductions before the end of the year, compared to about 70 before the data.
Treasuries rallied in the five months through September, posting their longest winning streak in 14 years as the Fed finally kicked off its rate-lowering cycle. On Wall Street, the question is now the pace and size of cuts ahead as policymakers attempt to keep inflation at bay without creating trouble in the labor market.
The ADP figures offer an early litmus test for traders looking ahead to the jobs report for September on Friday. After the Fed lowered rates by 50 basis points last month, Chair Jerome Powell said the central bank is confident “strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%.”
However, Powell also cautioned against assuming the half-point move set a pace that policymakers would continue — underscoring that everything would hinge on how the data come in.
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