October 3, 2018 / 2:58 PM / 8 months ago

TREASURIES-Strong private jobs data boosts yields

    By Kate Duguid
    NEW YORK, Oct 3 (Reuters) - U.S. Treasury yields rose on
Wednesday morning after U.S. private payrolls recorded their
biggest increase in seven months in September, pointing toward a
solid print for Friday's non-farm payrolls report.
    Benchmark 10-year government yields, which
reflect the market's view on the overall health of the economy,
rose 2.2 basis points as sustained labor market strength should
continue to underpin economic growth.   
    Private payrolls rose by 230,000 jobs in September, the
largest gain since February, the ADP National Employment Report
showed, after an upwardly revised 168,000 increase in August.
The ADP report was published ahead of the government's more
comprehensive employment report for September due on Friday.

    "Since today's data came in well above market expectations,
this release is likely to inspire other forecasters to revise
their forecasts higher," said Ward McCarthy, money market
economist at Jefferies. He noted, however, that due to an
erratic correlation between the ADP and the government's
non-farm payrolls releases, the firm tends not to revise its
payrolls forecast based on ADP data.
    Despite the ADP report's poor record predicting the
private-payrolls component of the government's employment
report, last month's jump underscored robust labor market
conditions that are likely to keep the Federal Reserve on track
to raise interest rates again in December.  
    Stellar data on the U.S. non-manufacturing sector from the
Institute for Supply Management further supported the ADP data
from earlier in the morning, and pushed yields across maturities
    "The labor market is firm - that is not new news," said Greg
Peters, senior portfolio manager at PGIM Fixed Income. 
    In spite of that, he argued, wage growth has continued to be
tepid. "There was quite the clamoring after the (August) wage
numbers came in much firmer, but on a real basis, they're flat,
and a lot of it is just catch up and lag... It was somewhat of
an overreaction."
    Wage growth is a key component in rising inflation, which
the Fed manages through interest rate policy. Labor market
strength, without wage growth, may force the central bank to
reconsider its rate-hiking strategy. 
    Yields also rose on Wednesday morning after the selloff in
Italian bonds, which began late Monday, abated. Italy's populist
government will cut its budget deficit targets from 2020,
Economy Minister Giovanni Tria said on Wednesday, relieving some
pressure on the country's financial markets after investors
boosted the benchmark Italian government bond to a
4-1/2 year high as they sought safety in other markets.

      October 3 Wednesday 10:29AM New York / 1429 GMT
 US T BONDS DEC8               139-17/32    -0-31/32  
 10YR TNotes DEC8              118-128/256  -0-80/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.18         2.2225    0.000
 Six-month bills               2.35         2.4113    0.008
 Two-year note                 99-212/256   2.8394    0.024
 Three-year note               99-138/256   2.914     0.034
 Five-year note                99-128/256   2.9836    0.041
 Seven-year note               99-168/256   3.0549    0.043
 10-year note                  98-20/256    3.1024    0.046
 30-year bond                  95-20/256    3.2589    0.052
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        16.75        -0.25    
 U.S. 3-year dollar swap        15.75         0.00    
 U.S. 5-year dollar swap        11.25        -0.25    
 U.S. 10-year dollar swap        4.75        -0.50    
 U.S. 30-year dollar swap       -8.75        -0.50    

 (Reporting by Kate Duguid; Editing by Andrea Ricci)
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