BOND REPORT: Treasury Yields Rebound After Upbeat ADP Payrolls Numbers

Treasury yields recovered Thursday after a strong reading on private-sector jobs growth that came a day ahead of the more closely-watched non-farm payrolls numbers .

The yield on the 10-year Treasury note added 2.5 basis points to 2.230%, after falling to 2.198% in Wednesday's session, the second lowest yield in a year. Bond prices move inversely to yields; one basis point is one hundredth of a percentage point.

The yield for the 2-year note gained 1.2 basis point to 1.298%, while the yield for the 30-year bond, or the long bond, added 1.7 basis point to 2.880%.

Payrolls processor ADP reported that private sector employment grew by 253,000 in May (http://www.marketwatch.com/story/private-sector-job-growth-rebounds-to-rip-roaring-pace-in-may-adp-says-2017-06-01), beating the Econoday consensus expectation of 170,000 (http://www.marketwatch.com/story/private-sector-job-growth-rebounds-to-rip-roaring-pace-in-may-adp-says-2017-06-01). The stronger pace of hiring could spur hopes for a repeat performance in the non-farm payrolls report on Friday as the two numbers are historically correlated. But their close ties have faded recently.

Traders also gave attention to an increase in initial jobless claims of 13,000 to 248,000 in the week ending May 27 (http://www.marketwatch.com/story/jobless-claims-climb-to-5-week-high-of-248000-2017-06-01), outpacing forecasts of economists surveyed by MarketWatch. The less volatile four-week average rose to 238,000, suggesting a healthy jobs market.

Bond prices have gained even as geopolitical jitters stirred after a new U.K. poll highlighted growing uncertainty about the outcome of the general election later this month. The lead held by Prime Minister Theresa May's Conservative Party and the left-wing Labour party has narrowed ahead of the vote on June 8, according to a recent YouGov poll.

The 10-year U.K. government bond, or gilts, moved up 1.6 basis point to 1.065% on a mild flight-to-quality bid as investors left U.K. assets for safer shores. The pound slipped to $1.2837 (http://www.marketwatch.com/story/sterling-extends-loss-as-conflicting-election-polls-weigh-on-sentiment-2017-06-01)before coming back up again.

A change of government, or a loss of backing for the incumbent Conservatives, could complicate the U.K.'s negotiations with the European Union as it leaves the economic bloc. But pundits claim the recent YouGov poll is based on a new and untested approach, introduced only 10 days before the general election.

See: Dollar weakens, pound volatile after latest poll on U.K. election (http://www.marketwatch.com/story/pound-falls-again-after-pollster-predicts-may-will-lose-majority-in-election-2017-05-31)

Fed. Gov. Jerome Powell said the central bank's $4.5 trillion balance sheet could be halved (http://www.marketwatch.com/story/feds-powell-balance-sheet-may-eventually-be-halved-from-current-levels-2017-06-01)from current levels by 2022. A reduction of the Fed's portfolio can take away a significant buyer from the Treasurys market, cutting demand for U.S. government paper and lifting yields.

"Powell speaks relatively infrequently on policy, but when he does he tends to be a very strong barometer of the thinking of the [board of governors]," wrote Thomas Simon, senior money market economist at Jefferies.

(END) Dow Jones Newswires

June 01, 2017 09:19 ET (13:19 GMT)