June 5, 2019 / 7:32 PM / 19 days ago

TREASURIES-Short-dated U.S. yields fall as dismal jobs data fuel rate-cut bets

    * U.S. private jobs growth slowest in over nine years - ADP
    * Brainard says Fed prepared to adjust policy to support
expansion
    * Futures imply traders see multiple U.S. rate cuts by
year-end
    * Fed's Beige Book shows businesses worry about trade
tension

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, June 5 (Reuters) - Short-dated U.S. Treasury
yields fell on Wednesday, with two-year yields hitting their
lowest since December 2017 in the wake of a report that showed
private domestic jobs growth decelerated in May to its weakest
in over nine years.
    The weak ADP National Employment Report which showed
companies hired only 27,000 workers last month, together with
hints of possible rate cuts from Federal Reserve officials,
spurred an early wave of buying of U.S. government debt.
 
    "That was such a big miss," Karl Haeling, head of capital
markets sales at Landesbank Baden-Wurttemberg in New York, said
of the May ADP figure. "If the labor market crashes out, the Fed
loses the one thing it has been hanging its hat on."
    Much of the yield curve steepened to levels not seen in
seven months, reversing its recent flattening due to concerns
about a dramatic economic slowdown stemming from trade disputes
between the United States and its trading partners.
    Analysts have blamed weakening U.S. data on escalating
global trade tensions, which simmered down somewhat after Chuck
Grassley, the chairman of the U.S. Senate Finance Committee,
said on Wednesday he thinks Mexico and the United States could
announce a trade deal on Thursday.
    Senior Fed officials have acknowledged that risks from
trade, Brexit and other developments could derail the U.S.
economic expansion, which this summer could become the longest
in history.
    Fed Governor Lael Brainard told Yahoo Finance on Wednesday
the Fed is prepared to adjust interest rates to sustain economic
growth.
    In late U.S. trading, yields on two-year Treasury notes
, which are sensitive to views on Federal Reserve
policy, were 3.20 basis points lower at 1.841% after hitting
1.773%, the lowest since December 2017.
    Ten-year Treasury yields were down 0.30 basis
points at 2.118%, hovering near their lowest since September
2017.
    The spread between two- and 10-year yields
grew to near 31 basis points, the widest in seven months.
    Global bond yields initially fell on speculation as to
whether the Bank of Japan may inject more stimulus, which sent
two-year Japanese yields to minus 0.218%, their most
negative since April 2017.
    Investor demand for Treasuries was curbed by gains on Wall
Street, with the S&P 500 index rising 0.6% and a
stronger-than-expected report on the U.S. services sector in May
from the Institute for Supply Management.
    The Fed's latest Beige Book on regional economic conditions
showed companies across the country were anxious about the
impact of rising trade tensions.
    In the futures market, federal funds contracts implied
traders have priced in a 55% chance the Fed would reduce
borrowing costs by at least 75 basis points by year-end, up from
51% late Tuesday and 14% a week earlier, CME Group's FedWatch
tool showed.
   Wednesday, June 5, at 1516 EDT (1916 GMT):
                               Price                  
 US T BONDS SEP9               153-14/32    -8/32     
 10YR TNotes SEP9              127-8/256    3/32      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.2925       2.3443    -0.013
 Six-month bills               2.1875       2.2427    -0.058
 Two-year note                 100-142/256  1.8389    -0.034
 Three-year note               100-234/256  1.8042    -0.030
 Five-year note                100-170/256  1.8598    -0.023
 Seven-year note               100-212/256  1.9973    -0.010
 10-year note                  102-76/256   2.1175    -0.003
 30-year bond                  105-12/256   2.6303    0.026
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       27.70        3.65      
 30-year vs 5-year yield       77.00        5.35      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         4.75         0.75    
 spread                                               
 U.S. 3-year dollar swap         2.25         0.75    
 spread                                               
 U.S. 5-year dollar swap         1.00         0.75    
 spread                                               
 U.S. 10-year dollar swap       -2.25         1.25    
 spread                                               
 U.S. 30-year dollar swap      -28.25         0.25    
 spread                                               
 
    
 (Reporting by Richard Leong
Editing by David Gregorio and James Dalgleish)
  
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