TREASURIES-US bonds firmer as Treasury's Bessent remarks, labor market woes drive demand

(Recasts, adds new analyst comment, auction results, Bessent's remarks, updates yields)

*

Bessent's comments viewed as supporting long end

*

US 10-year auction shows lackluster results

*

Weak labor data raises Fed rate cut expectations

*

Yield curve flattens: signals risk aversion, possible rate cut

By Gertrude Chavez-Dreyfuss

NEW YORK, Nov 12 (Reuters) - U.S. Treasuries rose on Wednesday, pushing yields lower, as market participants interpreted Treasury Secretary Scott Bessent's comments as supportive of the long end of the curve even as persistent labor market concerns underpinned the rally.

Worries about job market softness deepened after a private survey on Tuesday signaled employment losses, bolstering expectations for a U.S. Federal Reserve interest rate cut next month.

In afternoon trading, benchmark 10-year yields were down five basis points at 4.059%, while the 30-year yields slid 4.7 bps to 4.655%.

A lackluster auction of U.S. 10-year notes on Wednesday led to some selling of Treasuries, briefly paring the decline in their yields.

On the shorter end of the curve, U.S. two-year yields , which reflect interest rate expectations, slipped 3.1 bps to 3.559%. Speaking at the New York Fed U.S. Treasury market conference on Wednesday, Bessent said auction sizes for coupons - Treasury notes and bonds that pay interest - will remain unchanged for the next several quarters, suggesting steady supply, for now, that should keep government debt prices elevated and yields lower. Bessent also expressed support for reforms to ease banks' supplementary leverage ratio (SLR), which directs banks to hold capital against investments regardless of their risk and effectively discourages these institutions from holding Treasuries.

The Fed was forced to temporarily waive the SLR after the Treasury market seized up in March 2020, but it let that relief expire a year later.

Cutting SLR would significantly free up additional capacity for banks on their balance sheets, allowing them to add low risk-free assets such as Treasuries without having to allocate capital to cover potential losses.

"Bessent did not really say anything substantially new, but it's still creating a bullish atmosphere for Treasuries that are pushing yields on the long end toward the lower end of their recent ranges," said Will Compernolle, macro strategist at FHN Financial in Chicago.

JOB MARKET WEAKNESS

Aside from Bessent, concerns about the U.S. job market also pushed Treasury yields lower. Tuesday's weekly jobs data from ADP showed private employers shed an average of 11,250 jobs a week in the four weeks ending on October 25. With the U.S. bond market closed on Tuesday for the Veterans Day holiday, investors had their first chance to price in the employment report only on Wednesday.

"The market is paying attention to the ADP number yesterday (Tuesday) and people are thinking that job growth is going to be particularly weak, not only for October, but also for November," said Stan Shipley, managing director and fixed income strategist at Evercore ISI.

In other parts of the bond market, the yield curve modestly flattened on Wednesday, as the spread between U.S. two-year and 10-year yields narrowed to 50.1 bps, from 52.3 bps late on Monday.

The curve showed a bull flattening scenario, with long-term yields declining more sharply than short-term rates - a pattern that often reflects heightened demand for duration, signaling risk aversion or expectations of softer inflation. That historically tends to precede a Fed rate cut.

U.S. rate futures priced in a 65% chance of a rate cut next month, according to LSEG calculations, with about 80 bp of easing expected by the end of 2026. Policymakers and investors have been flying blind for a few weeks as the U.S. government shutdown has halted data publication. Congress is moving toward approving a reopening deal later on Wednesday, and investors expect that September payrolls may be among the first sets of delayed data to be published. However, the White House said on Wednesday that October jobs and inflation reports might never be released as a consequence of the government shutdown. White House spokesperson Karoline Leavitt told reporters at a briefing that the shutdown impaired federal statistics collection.

Also on Wednesday, the U.S. Treasury sold $42 billion in new 10-year notes and demand was underwhelming based on auction stats. The auction priced at 4.074%, slightly higher than the expected rate at the bid deadline, suggesting that investors sought a little premium to take down the note.

The bid-to-cover ratio, a measure of demand, was seen as tepid at 2.43 cover, less than last month's 2.48. Indirect bidders, which include foreign investors, were awarded 67.0%, up from the prior 66.8%, but below the 70.1% average.