Most Treasury yields fell on Wednesday, pushing the 2-year to an almost seven-month low, after data showed the U.S. economy’s private sector added fewer-than-expected jobs in March and reinforced recession fears.
What happened
- The yield on the 2-year Treasury TMUBMUSD02Y,
3.808% declined 7 basis points to 3.761% from 3.831% on Tuesday. Wednesday’s level is the lowest since Sept. 13, based on 3 p.m. figures from Dow Jones Market Data. Yields move in the opposite direction to prices. - The yield on the 10-year Treasury TMUBMUSD10Y,
3.306% fell 5 basis points to 3.285% from 3.335% as of Tuesday afternoon. Wednesday’s level is the lowest since Sept. 7. - The yield on the 30-year Treasury TMUBMUSD30Y,
3.570% dropped 3.6 basis points to 3.556% from 3.592% late Tuesday. Wednesday’s level is the lowest since Feb. 2.
What drove markets
Data released on Wednesday showed that U.S. private payrolls climbed by 145,000 in March, well below the 210,000 gain that had been expected by economists polled by The Wall Street Journal. Along with Tuesday’s job-openings report, the private-payrolls data was another sign that the red-hot labor market is starting to loosen.
In a speech Tuesday evening, Cleveland Fed President Loretta Mester said she sees “somewhat” higher interest rates ahead and expects the central bank will have to raise interest rates further to bring down inflation.
Fed funds futures traders are skeptical, however. They see a 54.2% probability that the Fed will leave interest rates unchanged at between 4.75% and 5% on May 3, according to the CME FedWatch Tool. In addition, traders see diminishing chances of further rate hikes after June, according to 30-day Fed Funds futures.
In other U.S. economic updates released on Wednesday, the Institute for Supply Management’s service sector activity index fell to a three-month low of 51.2% in March and the U.S. trade deficit widened in February to a four-month high of $70.5 billion. Taken together, both reports reflect strains in the economy.
Weekly initial jobless claims data arrive on Thursday, followed by Friday’s nonfarm payrolls report for March. Trading is expected to be thin on Friday, given the abbreviated session for Good Friday which may complicate how financial markets digest the payrolls report.
What analysts are saying
“Our composite models suggest the economy was on track to fall into recession soon even before the impact of the banking turmoil feeds through. There also appears to be a lower, but rising, chance that a recession has already begun,” said Andrew Hunter, deputy chief U.S. economist for Capital Economics.
“Our coincident recession tracking model now suggests a 46% chance that the recession has already started,” Hunter wrote in a note.
