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US government bonds fell on Tuesday after gauges of services activity and the labour market came in above forecasts, adding to investor expectations that the Federal Reserve will delay its next cut to interest rates.
The benchmark 10-year yield was 0.07 percentage points higher at 4.68 per cent, its highest level since May last year, while the policy-sensitive two-year Treasury yield was up 0.03 percentage points at 4.3 per cent. Yields rise as prices fall.
The moves came after a reading of 54.1 for ISM’s non-manufacturing purchasing managers’ index for December, up from 52.1 in November and higher than economists’ consensus forecast of 53.3. A reading above 50 signals expansion.
At the same time, separate data showed demand for US workers rose in November to 8.1mn vacancies, up from 7.74mn in October, according to the labour department, and above forecasts of 7.7mn openings.
Investors have been watching measures of business activity and the health of the labour market closely for clues as to how far and how rapidly the Federal Reserve will choose to cut interest rates.
Markets are now fully pricing in a quarter-point rate cut by July this year, having expected it by June prior to the data. They now expect 0.36 percentage points of cuts by the end of the year, down from 0.42 percentage points before the data.
The Fed first reduced rates from their 23-year highs in September, and made two further cuts before the end of 2024. However, in December policymakers signalled a slower pace of easing in 2025, underscoring persistent concerns about inflation.
US stocks gave up their earlier gains following the release of November’s jobs data, with the blue-chip S&P 500 and the tech-heavy Nasdaq Composite down 0.3 per cent and 0.8 per cent respectively in late-morning trade in New York.
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