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US government bonds fell on Tuesday after gauges of services activity and the labor market came in above forecasts, adding to investor expectations that the Federal Reserve will delay its next interest rate cut.
The benchmark 10-year yield was 0.07 percentage point higher at 4.68 percent, its highest level since May last year, while the policy-sensitive two-year Treasury yield rose 0.03 percentage point in 4.3 percent. Yields rise as prices fall.
The moves came after a reading of 54.1 for the ISM 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 that demand for US workers rose in November to 8.1 million job vacancies, up from 7.74 million in October, according to the Labor Department, and above forecasts for 7.7 million openings.
Investors have been closely watching measures of business activity and the health of the labor market for clues about how far and how quickly the Federal Reserve will choose to cut interest rates.
Markets are now fully pricing in a quarter-point rate cut by July this year, waiting until June before the data. They now expect 0.36 percentage points of cuts by the end of the year, up from 0.42 percentage points before the data.
The Fed first cut rates from their 23-year highs in September and made two more cuts before the end of 2024. However, in December policymakers signaled a slower pace of easing in 2025, underscoring lingering inflation concerns .
U.S. stocks gave up their earlier gains after the release of November jobs data, with the blue-chip S&P 500 and Nasdaq Composite down 0.3 percent and 0.8 percent, respectively, in late morning trade on New York.
