The 2-year U.S. Treasury yield reached a level not seen in 16 years on Thursday as investors absorbed strong jobs data that could mean further tightening from the Federal Reserve.
The 2-year Treasury was last up by nearly 4 basis points at 4.987%. The yield hit a high of 5.120%, which was last exceeded on June 15, 2007, when it reached 5.121%. Meanwhile, the yield on the 10-year Treasury was last trading at 4.035% after jumping 9 basis points.
Yields and prices move in opposite directions and one basis point equals 0.01%.
ADP’s employment report showed private sector jobs jumped by 497,000 in June, far above the 220,000 Dow Jones consensus estimate. It’s also greater than the the 267,000 gain in May.
The ADP data is considered more unreliable than other jobs data, and comes ahead of Friday’s official June payrolls report. Economists polled by Dow Jones are anticipating 240,000 non-farm payrolls were added last month, which is lower than the 339,000 jobs added in May.
However, investors may now be raising their expectations for a stronger number that could point to the Fed resuming its hiking campaign this month after a pause. The central bank next decides on interest rates on July 26.
The U.S. 2-year Treasury yield
Fed Chairman Jerome Powell said last week that continued strength in the labor market was one of the key drivers behind the central bank’s position that further restriction is needed to cool the economy.
The data could therefore inform the Fed’s next interest rate policy moves, especially the pace at which rates may be increased. Powell said last week that he would not rule out the possibility of hiking rates at consecutive meetings.
This marked a shift in tone compared to his previous comments that had suggested a slower pace of rate increases was likely, a sentiment his fellow policymakers also held at their last meeting, according to minutes published Wednesday.
The minutes also reiterated that despite the Fed leaving rates unchanged in June, the majority of officials are expecting further rate hikes.
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