US Treasuries prices climbed on Wednesday, pushing benchmark yields to seven-week lows, as unexpectedly weak private-sector jobs data highlighted uncertainty over the nascent economic recovery. The release of minutes from the Federal Reserve's last policy meeting on August 11-12 underscored the view that a recovery, while probably under way, would be very gradual, that inflation would remain subdued, and interest rates remain low, all constructive factors for the bond market.
The ADP Employer Services report said US private employers cut 298,000 jobs in August, more than the 250,000 that economists expected. The report, which comes two days ahead of the US government's closely watched non-farm payrolls report, enhanced the safe-haven allure of government bonds by reminding investors that the pace of economic recovery is likely to be uneven.
The stock market's tentative tone also provided support for bonds. In mid-afternoon trade, the benchmark 10-year Treasury note was up 18/32, its yield at 3.30 percent - the lowest since July 13 - versus Tuesday's close of 3.36 percent. The US government's comprehensive nonfarm payrolls report on Friday, which includes public and private sector jobs, remains the key data event for the week.
Economists expect Friday's report to show the rate of labor market deterioration slowed in August, with 225,000 jobs lost versus 247,000 in July. That would signal that the economy is not getting worse but also not improving at a rapid pace. Worries about the durability of the widely expected economic expansion in the second half of this year have helped longer dated bonds in particular, which outperformed other segments of the market for much of August.
During late August, the difference between 2- and 30-year yields dropped to its flattest in more than three months as investors bet the slow economic recovery would force the Federal Reserve to maintain its near-zero percent interest rate policy for some time, making longer dated yields attractive. After a bout of profit taking in recent sessions, the 30-year long bond was outperforming again. The long bond rose 1-17/32 in price, its yield falling to 4.11 percent the lowest since late May from Tuesday's close of 4.19 percent.