TREASURIES-US yields slide as data raises Fed rate pause hopes

(Adds fresh prices, details) By Herbert Lash NEW YORK, April 5 (Reuters) - Treasuries yields slid further on Wednesday after reports on private payrolls and the U.S. services sector pointed to a cooling economy and added to market speculation that the Federal Reserve might pause its hiking of interest rates in May. The U.S. services sector slowed more than expected in March as demand cooled, while a measure of prices paid by services businesses fell to the lowest in nearly three years, adding to growing market fears of a recession this year. Earlier, an ADP National Employment report showed private employment increased by 145,000 jobs last month as U.S. private employers hired far fewer workers than expected in March, suggesting the labor market was cooling. Data for February was revised higher to show 261,000 jobs were added instead of 242,000 as previously reported. The two-year Treasury yield, which typically moves in step with interest rate expectations, was down 4.6 basis points to 3.788% after plunging to 3.646% when the services sector data was released. The yield on benchmark 10-year notes slid 3.9 basis points to 3.298%, on track to close at an almost seven-month low as safe-haven buying pushed up bond prices, which move opposite to their yield. The two-year's yield pared its decline in late trading after swinging 25 basis points during the day. "The market is again getting more fearful of recession and is pricing in Fed rate cuts later in the year. The market just might talk itself into recession; we’ll see," said Kim Rupert, managing director of global fixed income at Action Economics in San Francisco. "Some breaks of key technical factors are adding to the slide in yields. It's like a snowball rolling, it's got some momentum behind it," she said. The market now is waiting for the U.S. unemployment report on Friday to confirm whether the labor market is cooling, a major requisite in the Fed's fight to curb inflation. "As a precursor for Friday's report, the incremental information this week has been a net negative," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York. "We're finally getting confirmation that the cumulative impact of the prior rate hikes is starting to flow through to the realized data," he said. On Monday, the Institute for Supply Management (ISM) survey showed U.S. manufacturing activity slumped in March to the lowest level in nearly three years as new orders plunged. Tuesday's data showed U.S. job openings dropped to their lowest level in nearly two years in February, according to the monthly Job Openings and Labor Turnover Survey, or JOLTS report. Futures priced in a 58.8% chance that the Fed does not hike its target rate on May 3 when policymakers conclude a two-day meeting, up from 40.3% on Monday, CME's FedWatch Tool showed. The Fed has hiked rates nine consecutive times since March 2022. Chances the Fed cuts rates by year's end also rose, with the outlook for the U.S. central bank's target rate falling below 4.0% in December at one point during the session.. The yield on the 30-year Treasury bond was down 3.2 basis points to 3.562%. A closely watched part of the gap between yields on two- and 10-year notes, seen as a recession harbinger when the yield on shorter-term securities is higher than those with longer-terms, was at -49.2 basis points. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.379%. The 10-year TIPS breakeven rate was last at 2.24%, indicating the market sees inflation averaging about 2.2% a year for the next decade, or in line with the Fed's target for inflation. The U.S. dollar five years forward inflation-linked swap , seen by some as a better gauge of inflation expectations due to possible distortions caused by the Fed's quantitative easing, was last at 2.419%. April 5 Wednesday 3:24 p.m. New York / 1924 GMT Price Current Net Yield % Change (bps) Three-month bills 4.72 4.8433 -0.042 Six-month bills 4.62 4.7962 -0.011 Two-year note 100-42/256 3.788 -0.046 Three-year note 102-238/256 3.5658 -0.034 Five-year note 101-50/256 3.3624 -0.026 Seven-year note 101-196/256 3.3394 -0.033 10-year note 101-176/256 3.2978 -0.039 20-year bond 102-232/256 3.6674 -0.048 30-year bond 101-40/256 3.5616 -0.032 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 30.25 -2.00 spread U.S. 3-year dollar swap 15.25 -1.75 spread U.S. 5-year dollar swap 5.75 -0.25 spread U.S. 10-year dollar swap -0.50 0.50 spread U.S. 30-year dollar swap -41.50 0.50 spread (Reporting by Herbert Lash; Editing by Tomasz Janowski, Jonathan Oatis and Josie Kao)