U.S. Government bonds march lower ahead of employment report

The U.S. Treasuries continued their march lower Thursday, weighed down by considerably stronger than expected ISM non-manufacturing data (largest gain since 1997) that managed outshine weaker than expected results from trade balance data and the ADP employment estimate.

The yield on the benchmark 10-year Treasury note rose 1/2 basis point to 1.71 percent, the yield on 5-year bond jumped 1 basis point to 1.25 percent and the yield on short-term 2-year note climbed nearly 1 basis point to 0.84 percent by 12:00 GMT.

The ADP US employment estimate came in at +154k for September, below market expectations for a +175k result, as compared to the revised +175k increase seen in August (previous was +177k). Despite the weaker than expected ADP headline reading, we anticipate a +180k increase in non-farm payrolls on Friday, coupled with a 4.8 percent headline unemployment rate.

Markets now await a light flow of data on Thursday, highlighted by jobless claims. However, this is merely a pause in the significantly more anticipated September employment report on Friday which could go a long way in bolstering calls for some policy action before year-end as the Fed remains supported by further improvement in employment conditions alongside gradually warmer inflation readings.

On balance, nothing is particularly in crisis mode but the spoken goal of policymakers has been to continue along a gradual path (read as having to do at least something) in an attempt to avoid have to be more aggressive down road.

Meanwhile, the S&P 500 Futures traded 4.50 points lower at 2,148.50 by 12:10 GMT.