U.S. Treasury yields could move lower as the Fed rate decision looms

U.S. Treasury yields were slightly lower on Tuesday as the market was in a holding pattern and consolidated moves as investors awaited the Federal Reserve’s interest rate decision expected on Wednesday.

U.S. data showing private payrolls rose by an average of 14,250 jobs in the four weeks ended Oct. 11 have put modest pressure on yields. ADP said Tuesday it would publish a weekly preliminary estimate of the ADP National Employment Report every Tuesday starting Oct. 28, based on its high-frequency data.

US consumer confidence data was also released, showing slightly above consensus, although the report had little impact on government bonds.

In late morning trading, the yield on the US 10-year Treasury note fell 1.4 basis points to 3.984%.

Two-year U.S. Treasury yields, which typically keep pace with the Fed’s interest rate expectations, were little changed at 3.498%.

“We don’t expect any relevant market moves on Tuesday as investors prepare for tomorrow’s rate decision,” said Vail Hartman, rates strategist at BMO in New York. “There was interesting data on jobs, but nothing changed investors’ view of the labor market.” The strategist said ADP data showed an average of 57,000 new jobs in the four weeks to October, up from September’s average of 32,000. But that was tempered by the layoff announcements from major companies such as Amazon and UPS.

“High-profile layoff announcements highlight the risk of a potentially higher unemployment rate as hiring has declined,” Hartman said.

Investors are also focused on how the Fed will factor the economic fallout from the US government shutdown into its policy outlook and whether the market has justified confidence in another rate cut in December.

Markets largely expect the Fed to announce a 25 basis point rate cut on Wednesday. The CME FedWatch tool puts the chance of a second cut in December at 96%.