Private payrolls miss weighs on yields; Treasury cuts auction sizes

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NEW YORK — An unexpected decline in private

payrolls on Wednesday pushed US Treasury yields slightly lower

as investors weighed the significance for Friday’s broader jobs

report and the Federal Reserve’s plan to raise interest rates

this year.

Private payrolls dropped by 301,000 jobs last month, the ADP

National Employment Report said, well below an increase of

207,000 jobs expected by economists polled by Reuters. Data for

December was revised lower to show 776,000 jobs added instead of

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the initially reported 807,000.

The jobs losses were likely impacted by effect of the spread

of the Omicron variant of COVID-19, ADP said.

The ADP report, which is jointly developed with Moody’s

Analytics, has a poor record predicting the private payrolls

component of the government’s employment report.

The stall in a rapid increase in Treasury yields in January,

which by some measures was its largest since 2009, has helped

bolster US stocks, said Craig Johnson, technical market

strategist at Piper Sandler & Co.

“The return of the buy-the-dip mantra following extremely

oversold conditions, interest rate stabilization, and a

relatively solid earnings backdrop have been the primary drivers

of the recent recovery,” he said.

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The yield on 10-year Treasury notes was down 3.2

basis points to 1.768%, though it remains nearly 30 basis points

higher than where it ended 2021. The yield on the 30-year

Treasury bond was down 2.8 basis points to 2.096%.

The Treasury said on Wednesday it expects to cut the size of

2-, 3- and 5-year note auctions by $2 billion each per month

over the coming quarter, while 7-year auctions will be cut by $3

billion per month in the same period.

New and reopened 10-year note and 30-year bond auctions will

also be reduced by $2 billion, while the 20-year bond auctions

will be cut by $4 billion.

A closely watched part of the US Treasury yield curve

measuring the gap between yields on 2- and 10-year Treasury

notes, seen as an indicator of economic

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expectations, was at 60.6 basis points, nearly 20 points lower

than where it ended 2021.

The 2-year US Treasury yield, which typically

moves in step with interest rate expectations, was down 0.5

basis point at 1.160%.

February 2 Wednesday 2:47PM New York / 1947 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 0.19 0.1927 -0.023

Six-month bills 0.4575 0.4649 -0.020

Two-year note 99-113/256 1.1595 -0.005

Three-year note 99-74/256 1.3719 -0.011

Five-year note 99-130/256 1.603 -0.020

Seven-year note 100-32/256 1.7309 -0.029

10-year note 96-124/256 1.768 -0.032

20-year bond 97-132/256 2.1549 -0.036

30-year bond 95-28/256 2.0966 -0.027

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

US 2-year dollar swap 15.50 0.50

spread

US 3-year dollar swap 14.50 0.25

spread

US 5-year dollar swap 7.00 0.25

spread

US 10-year dollar swap 6.25 0.50

spread

US 30-year dollar swap -17.50 0.75

spread

(Reporting by David Randall

Editing by Bernadette Baum and Leslie Adler)