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U.S. government bonds fell on Tuesday after indicators of services activity and the labor market came in above forecasts, further raising investor expectations that the Federal Reserve will delay its next interest rate cut.
The benchmark 10-year bond yield was up 0.07 percentage points at 4.68 percent, its highest level since May last year, while the yield on the policy-sensitive two-year bond was up 0.03 percentage points at 4, 3 percent. Yields rise as prices fall.
The moves followed a reading of 54.1 for the ISM’s non-manufacturing PMI for December, up from 52.1 in November and above the economist consensus of 53.3. A reading above 50 signals expansion.
At the same time, separate data showed demand for U.S. workers rose to 8.1 million job openings in November, up from 7.74 million in October, according to the Labor Department, and above forecasts of 7.7 million job openings. .
Investors have been closely watching measures of business activity and the health of the labor market for clues as to how far and how fast Federal Reserve will decide to lower interest rates.
Markets are now fully pricing in a quarter-point rate cut by July this year, which they expected by June before the data release. They now expect a contraction of 0.36 percentage points by the end of the year, down from 0.42 percentage points before the data was released.
The Fed first cut rates from their 23-year highs in September and made two more cuts before the end of 2024. However, in December policymakers signaled a slower pace of easing in 2025, highlighting ongoing concerns about inflation.
U.S. stocks gave up earlier gains after the release of November jobs data, with the blue-chip S&P 500 and tech-rich Nasdaq Composite down 0.3 percent and 0.8 percent, respectively, in late morning trading in New York.
