2024.04.0319:12:00UTC+00Treasuries Recover From Early Weakness, Close Slightly Higher

Treasuries extended their recent downward trend in early trading on Wednesday but showed a significant turnaround over the course of the session.

Bond prices climbed well off their worst levels of the day, eventually ending the day slightly higher. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by 1.0 basis point to 4.355 percent.

Early in the session, the ten-year yield reached as high as 4.429 percent, making the highest intraday level in over four months.

The rebound treasuries came following the release of a report from the Institute for Supply Management showing an unexpected slowdown in the pace of U.S. service sector growth in the month of March.

The ISM said its services PMI dipped to 51.4 in March from 52.6 in February. While a reading above 50 still indicates growth in the sector, economists had expected the index to inch up to 52.7.

Notably, the report also showed a substantial slowdown in the pace of price growth in the sector, with the prices index tumbling to 53.4 in March from 58.6 in February. The index fell to its lowest level since March 2020.

The data helped ease recent concerns about the outlook for interest rates, which contributed to recent weakness in the bond market.

Worries the Federal Reserve may hold off on lowering interest rates also contributed to the early weakness among treasuries after payroll processor ADP released a report showing stronger than expected private sector job growth in the U.S. in the month of March.

ADP said private sector employment jumped by 184,000 jobs in March after climbing by an upwardly revised 155,000 jobs in February.

Economists had expected private sector employment to increase by 148,000 jobs compared to the addition of 140,000 jobs originally reported for the previous month.

Meanwhile, Fed Chair Jerome Powell reiterated during remarks at Stanford University that the central bank is not in a hurry to begin lowering interest rates.

Powell pointed to higher inflation data over January and February as a reason for the Fed to be cautious but acknowledged it is "too soon to say whether the recent readings represent more than just a bump."

"We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent," Powell said.

He added, "Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy."

Reports on weekly jobless claims and the U.S. trade deficit may attract attention on Thursday, although trading activity is likely to be somewhat subdued ahead of the release of the more closely watched monthly jobs report on Friday.