NEW YORK, Oct 5 (Reuters) - The yield on the benchmark
U.S. 10-year Treasury note jumped on Wednesday after two
straight days of declines, as economic data failed to buttress
recent hopes the U.S. Federal Reserve might adopt a less hawkish
U.S. economic data over the past two days hinting the labor
market and economy were slowing, as well as a surprise move by
the Reserve Bank of Australia (RBA) to raise rates by a
less-than-expected 25 basis points helped push the yield on the
10-year down nearly 19 basis points as optimism grew the Fed
might start to be less aggressive in tightening policy.
The yield on 10-year Treasury notes was up 14.4
basis points to 3.761%, on track for its biggest one-day jump
since Sept. 26.
But on Wednesday, the ADP National Employment report showed
private employment rose by 208,000 in September, above the
200,000 estimate of economists polled by Reuters and the 185,000
for August that was revised higher.
In addition, the Institute for Supply Management (ISM) said
its non-manufacturing PMI dipped to a reading on 56.7 last month
from 56.9 in August, but was above the 56.0 estimate, while its
employment gauge jumped up to 53 from 50.2 in the prior month.
"The mistake some investors may be making is to be overly
optimistic about a Fed pivot in the near term and they have been
abundantly clear that the bar for that is just extraordinarily
high to the point they havent even talked about a pivot," said
Bill Merz, head of capital market research at U.S. Bank Wealth
Management in Minneapolis.
"So optimism that maybe there is a Fed pivot around the
corner is quite premature."
The yield on the 30-year Treasury bond was up
8.1 basis points to 3.768%.
Investors will get two more looks at the labor market this
week in the form of weekly initial jobless claims and the
September payrolls report, with soft data likely to be welcomed.
Taking a different path than the RBA, the Reserve Bank of
New Zealand (RBNZ) on Wednesday raised rates by 50 basis points
to a seven-year high and contemplated whether to hike by 75
basis points, helping to dent hopes for a Fed shift.
Also on the hawkish side, the Swiss National Bank is
prepared to raise interest rates further to tackle inflation
after its recent 75-basis-point hike, SNB Governing Board member
Andrea Maechler said.
Fed officials have been steadfast in recent comments that
the central bank will take aggressive measures in hiking
interest rates to combat rising inflation even after three
straight hikes of 75 basis points.
San Francisco Federal Reserve Bank President Mary Daly said
on Wednesday that markets are working well and the central bank
is "resolute" on raising rates to bring down inflation.
A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes, seen as a reliable indicator of an economic
recession when inverted, was inverted by 39.5 basis points, up
from the negative 57.85 hit on September 22.
The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was up 5.7 basis
points at 4.154%.
The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
2.32%, after closing at 2.34% on Tuesday.
The 10-year TIPS breakeven rate was last at
2.219%, indicating the market sees inflation averaging 2.2% a
year for the next decade.
(Reporting by Chuck Mikolajczak
Editing by Nick Zieminski, Kirsten Donovan)