Treasurys Tumble After Robust Private Payrolls Data

US Treasurys sold off during the early part of today’s session following the release of ADP’s employment report, which displayed the largest increase in monthly private payrolls since April 2014.  The number of new hires by private employers in the US totaled 298,000 in February, surpassing January’s robust 261,000 revised level and well above expectations of 190,000.  Broken down by sector, goods-producing industries added a record 106,000 jobs while 193,000 jobs were added by service-providing firms.  Often an indicator for the Labor Department’s more comprehensive employment report, today’s ADP figure foreshadows a positive level for Friday’s nonfarm payrolls, which is currently expected to display a 197,000-monthly increase.  A strong nonfarm payrolls report would be the last domino to fall in support of a Fed rate hike next week, an outcome already pricing as a near certainty by markets.  Treasury yields/swap rates are currently up 2-4 bps across the curve, with the yield on the 10-year note up nearly 3 bps to 2.55%.  The US dollar also rose with the robust payroll data, strengthening 0.3% against major peers.

In a separate report released by the Labor Department this morning, nonfarm productivity grew at a 1.3% annualized rate in the final quarter of last year, matching previous estimates.  For all of 2016, productivity increased 0.2%, a significant drop-off from 0.9% in 2015, representing the lowest yearly advance since 2011.  Overall, weak productivity remains a significant hurdle in achieving the projected levels of economic growth by the Trump administration.  Also detailed in the report was a 1.7% bump in unit labor costs during the last three months of 2016, signaling a steady increase in wages/benefits for American workers.      

All three major US stock indices have been trading within a tight range through the first half of today’s session, led by the tech-heavy Nasdaq (+0.25%).  After a report by the EIA displayed US crude stockpiles climbed to a record high last week, crude oil prices tumbled more than 3%, bringing WTI and Brent to one-month lows of $51.30/barrel and $54.15/barrel, respectively.  US supply increased by 8.21 million barrels last week (+2 million expected) to a total of 528.4 million barrels.