TREASURIES-US Treasury yields drop amid mixed economic signals

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Mixed economic data ahead of December jobs report

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Fed weighs labor market against inflation concerns

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Supreme Court decision on tariffs could impact markets

(Updated in New York afternoon time)

By Karen Brettell

NEW YORK, Jan 7 (Reuters) - U.S. Treasury yields fell on Wednesday in choppy trading as traders evaluated economic releases showing a mixed picture on the U.S. economy ahead of Friday's highly anticipated jobs report for December.

U.S. private payrolls rebounded less than expected in December, the ADP's national employment report showed on Wednesday. Private employment increased by 41,000 jobs last month after a ?revised decrease of 29,000 in November.

A separate report showed that U.S. job openings fell more than expected in November while hiring eased, suggesting demand for labor continued to ebb amid economic uncertainty.

U.S. services sector activity ?meanwhile unexpectedly picked up in December, suggesting the economy ended 2025 on a solid footing.

"Put them all together and there's no clear signal," said Will Compernolle, ?macro strategist at FHN Financial in Chicago. "We'll have to wait to see what Friday's payrolls say, and ?even then I'm not sure if it's ?going to give all that much clarity."

Friday's jobs data is expected to show a cleaner picture on the state of the U.S. economy after the last few months were clouded by delays and incomplete ?data collection as a result of the federal government shutdown.

Employers are expected to have ?added 60,000 jobs last month, according to the median estimate of economists polled by Reuters. The unemployment rate is also expected to decline to 4.5% after an unexpected increase to 4.6% in November.

"The onus will be placed on Friday's payrolls report to derail what ?is the consensus for a pause at the January Fed meeting," said ?Vail Hartman, U.S. rates ?strategist at BMO Capital Markets in New York.

Federal Reserve policymakers are balancing a weakening labor market against concerns about still-elevated inflation.

Fed funds futures traders are pricing in only a small chance of a cut this month and roughly 44% odds of a cut in March.

The ?2-year note yield, which typically moves in step with interest rate expectations, was last down 0.3 basis points on the day at 3.47%. The yield on benchmark U.S. 10-year notes fell 4.1 basis points to 4.138%.

The yield curve between two- and 10-year yields flattened to 67 basis points.

Data showing an unexpected drop in German retail sales in November helped to boost the long end earlier on Wednesday, with traders being caught offside before the release.

Investors are also waiting on a Supreme Court decision on U.S. President Donald Trump's tariff policies.

Speculation has increased that this decision could come as soon as Friday after the Supreme Court scheduled ?the day to ?make rulings. The court does not announce ahead of time which rulings it intends to issue.

"We have been operating under the assumption, just as a base case, that the court ruling would go against the president. That being said, a number of workarounds are at the ?president's disposal that could help him replicate or just maintain his tariff agenda," said Hartman.

Any discussion about refunding tariffs is likely to be the biggest risk to markets when the decision is made.

"What really complicates things is if the Supreme Court says that the federal government has to issue refunds for the revenues they've already collected, then you do see a pretty bad impact on the deficit," said Compernolle.

Alternative methods of implementing tariffs if the current ones are struck down may also be negative for future revenues.

"That weighs poorly on the deficit if they're overturned on Friday because whatever replaces the status quo is going to be not as generous from a revenue perspective," Compernolle said.

Geopolitical tensions remain in focus ?after the United States took Venezuelan leader Nicolas Maduro into custody and as Trump ramps up statements expressing his desire for the U.S. to acquire Greenland.

Allies including France and Germany are working closely on a plan on how to respond should the U.S. act on its threat to take over Greenland, as Europe seeks to address Trump's ambitions in the region.

Trump on Wednesday, meanwhile, said his administration ?is moving to ban Wall Street investors from buying single-family homes in a bid to reduce home prices. (Reporting by Karen Brettell; Editing by Jan Harvey and Andrea Ricci)