TREASURIES-10-year yields hit two-month low as job gains miss expectations

By Karen Brettell

June 5 (Reuters) - Benchmark U.S. 10-year Treasury yields fell to a two-month low on Wednesday after data showed that employers added fewer jobs in May than economists expected, ahead of Friday's highly anticipated jobs report.

Yields have tumbled this week as softening economic data boosts expectations that the Federal Reserve will make two 25 basis point cuts this year.

The rally has also been driven by relief over an absence of new bond supply, after some Treasury auctions last week saw soft demand.

"This week has really just been about a lack of supply in the interest rate markets compounding a little bit of negativity on the economy," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia. "I don't think the economic downside is enough to explain all the movement."

Benchmark 10-year yields hit a two-month low after the ADP Employment report showed that private payrolls increased by 152,000 jobs last month, below economists' forecasts for 175,000 in jobs gains.

Benchmark 10-year note yields were last down 2 basis points at 4.314% and got as low as 4.312%, the lowest since April 5.

Two-year note yields fell 1 basis point to 4.764%.

The inversion in the two-year, 10-year yield curve deepened 1 basis point to minus 45 basis points.

This week's main U.S. economic release will be the government's nonfarm payrolls report for May due on Friday, which is expected to show that employers added 185,000 jobs in May. It comes after April's report showed that jobs growth slowed more than expected, with 175,000 jobs gains, the fewest in six months.

Traders have said that market participants are preparing for a weaker figure on Friday than economists expect.

Other data on Tuesday showed that job openings, a measure of labor demand, were down 296,000 to 8.059 million on the last day of April, the lowest level since February 2021.

Personal consumption expenditures (PCE) on Friday showing that U.S. inflation was steady in April and a report on Monday showing that U.S. manufacturing slowed for a second straight month in May added to the bond rally.

Services sector data for May is also due on Wednesday.

Next week's consumer price index (CPI) for May will then be critical for guiding Fed expectations in the near-term. It will come on Wednesday morning before the Fed is due to complete its two-day policy meeting, when Fed officials will update their economic and interest rate projections.

(Reporting By Karen Brettell, Editing by Franklin Paul)