TREASURIES-US yields skid as jobs data, Fed minutes back September rate cut

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U.S. jobs data revisions show 818,000 reduction

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Fed minutes show members leaning toward September rate cut

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U.S. rate futures price in 106 bps in cuts this year

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U.S. 20-year bond sale comes in better-than-expected

(Adds new comment, bullets, graphic, 20-year bond auction results, Fed minutes; updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, Aug 21 (Reuters) - U.S. Treasury yields shrank on Wednesday as jobs data revisions and minutes of the Federal Reserve's July meeting reinforced expectations that the central bank will finally cut interest rates in September for the first time in over four years.

U.S. two- to 30-year yields all slid to two-week lows.

The Bureau of Labor Statistics revised payrolls in the April 2023-March 2024 period to show a 0.5% reduction in jobs, equivalent to 818,000. This was at the higher end of market estimates of up to one million fewer jobs.

If the numbers hold steady through the final revision in February, it would be the largest downward revision since the 902,000 decline in March 2009.

"It seems like the impact of the tightness of monetary policy was greater than what the Fed initially thought," said Joe Kalish, chief global macro strategist at Ned Davis Research.

"Tighter monetary policy did slow the economy, did slow jobs creation and that should allow the Fed to get going even though the economy is not in recession. They should start cutting by September."

The Fed minutes said "the vast majority" of policymakers "observed that, if the data continued to come in about as expected, it would likely be appropriate to

ease policy at the next meeting

."

The rate futures market fully expects a September rate cut. However, bets on a 50 basis-point easing rose to 37% from 25% on Tuesday, LSEG calculations showed. Odds of a 25-bp cut consequently decreased to 64% from 75% on Tuesday.

Rate futures have also priced in 106 bps in cuts in 2024.

"My general feeling is that the Fed probably wants to make a 50 basis-point cut in September, rather than 25, just because it's the first rate cut and you want to get the process going, and then 25 in November and 25 in December," said Tom di Galoma, managing director and head of fixed income, at Curvature Securities in Park City, Utah.

In afternoon trading, the benchmark 10-year yield dipped 2.6 bps to 3.791% after falling to a two-week low of 3.761%.

U.S. 20- and 30-year yields also dropped to their lowest in two weeks and were last down at 4.166% and 4.065% , respectively.

On the front end of the curve, the two-year yield, which reflects interest rate expectations, fell 7.2 bps to 3.928% . Earlier, it hit a two-week trough of 3.893%.

The U.S. yield curve bull-steepened, or narrowed its inversion on Wednesday, with the spread between two- and 10-year notes at minus 14 bps, down from minus 18.1 bps late on Tuesday. The curve briefly turned positive on Aug. 5.

A bull steepener, in which short-term rates fell more sharply than the long end, typically precedes a Fed easing cycle. The thinking is that rates on the front end of the curve have hit a peak and the next move by the Fed is to cut rates.

Also on Wednesday, the U.S. Treasury auctioned $16 billion in 20-year bonds, with slightly better-than-expected results. The high yield came in at 4.16%, slightly below the expected rate at the bid deadline. This meant that investors did not demand a premium to take down the bond, suggesting there was appetite for it.

There were $40.7 billion in bids for a bid-to-cover ratio of 2.54, down from the 2.68 seen from the July reopening which had $13 billion. The bid-to-cover ratio is another measure of demand.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Nick Zieminski and Richard Chang)