Treasury yields inch higher as traders eye U.S. data dump

By Jamie Chisholm

Treasury yields rose slightly early Thursday as investors jostled for position ahead of a slew of likely U.S. economic data catalysts in the next few days.

What's happening

-- The yield on the 2-year Treasury BX:TMUBMUSD02Y rose 0.8 basis points to 3.662%.

-- The yield on the 10-year Treasury BX:TMUBMUSD10Y climbed 1.7 basis points to 3.805%.

-- The yield on the 30-year Treasury BX:TMUBMUSD30Y added 1.6 basis points to 4.149%.

What's driving markets

Moves are relatively meager across the Treasury yield curve early in the session on Thursday as traders await a slew of economic updates that will likely impact the Federal Reserve's thinking on the pace of interest-rate cuts.

With inflation having fallen back close to the Fed's 2% target, the central bank is turning more of its focus to the pace of activity in the U.S. economy, particular the health of the labor market.

To that end, Thursday will see the latest weekly initial jobless claims report, due at 8:30 a.m. Eastern, followed at the same time on Friday by the September nonfarm payrolls report.

The ADP survey of private sector jobs released on Wednesday came in a bit stronger than forecast, and that has contributed to an uptick in Treasury yields.

"[T]hat was an important sign of strength in the U.S. labor market, particularly ahead of tomorrow's all-important jobs report, and it also ended a run of 5 consecutive months where the ADP reading had kept slowing down," said Jim Reid, strategist at Deutsche Bank.

Also underpinning Treasury yields were lingering concerns that a spike in oil prices because of the Middle East conflict, and the ongoing U.S. port strike, may spur inflation.

Other potential market catalysts for Thursday, include:

-- 9:45 a.m. S&P final U.S. services PMI for September.

-- 10:00 a.m. U.S. ISM services for September.

-- 10:00 a.m. U.S. factory orders for August.

-- 10:40 a.m. Minneapolis Fed President Neel Kashkari moderates discussion with Atlanta Fed President Raphael Bostic on inclusivity and the economy.

Ahead of all that, markets are pricing in a 63.9% probability that the Fed will cut interest rates by at least 25 basis points from the range of 4.75% to 5.00% after its next meeting on November 7, according to the CME FedWatch tool.

The chances of a 50 basis point rate cut on that date is 36.1%, down from 49.3 a week ago. The central bank is expected to take its Fed funds rate target back down to around 4.335% by the end of December, according to 30-day Fed Funds futures.

-Jamie Chisholm

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10-03-24 0446ET

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