After coming under pressure early in the session, treasuries showed a notable recovery attempt over the course of the trading day on Thursday.
Bond prices climbed well off their worst levels of the day but still closed slightly lower. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by 1.1 basis points to 3.720 percent after reaching a high of 3.784 percent.
The early pullback by treasuries came following the release of a report from payroll processor ADP showing private sector employment in the U.S. jumped by much more than expected in the month of December.
ADP said private sector employment shot up by 235,000 jobs in December after surging by an upwardly revised 182,000 jobs in November.
Economists had expected employment to jump by about 150,000 jobs compared to the addition of 127,000 jobs originally reported for the previous month.
While the stronger than expected job growth points to continued strength in the labor market, the data has added to concerns about the outlook for interest rates.
Traders worry continued labor market tightness could encourage the Federal Reserve to continue aggressively raising interest rates in the coming months.
The Fed released the minutes of its latest monetary policy meeting on Wednesday, indicating the central bank plans to continue raising interest rates and keep rates at a restrictive level for “some time.”
Selling pressure waned over the course of the session, however, with bond traders potentially seeing further rate hikes as already priced into the markets.
“The bond market still expects rate cuts at the end of the year but wage pressures may eventually force them to push back those rate cut calls until next year,” said Edward Moya, senior market analyst at OANDA.
On Friday, the Labor Department is scheduled to release its more closely watched employment report for the month of December.
Economists currently expect employment to jump by 200,000 jobs in December after surging by 263,000 jobs in November, while the unemployment rate is expected to hold at 3.7 percent.
With the monthly jobs report looming, the Labor Department released a report this morning showing a modest decrease in first-time claims for U.S. unemployment benefits in the week ended December 31st.
The report said initial jobless claims slipped to 204,000, a decrease of 19,000 from the previous week’s revised level of 223,000. Economists had expected jobless claims to come in unchanged compared to the 225,000 originally reported for the previous week.
A separate report released by the Commerce Department showed the U.S. trade deficit narrowed significantly more than expected in the month of November.
The monthly jobs report is likely to be in the spotlight on Friday, although traders are also likely to keep an eye on reports on service sector activity and factory orders.