Yields drift lower ahead of ECB meeting, US payrolls data

NEW YORK: US Treasury yields retreated on Wednesday, as stocks weakened and risk appetite dimmed, with investors awaiting this week's European Central Bank monetary policy meeting as well as the US nonfarm payrolls report for February.

Wall Street shares traded lower on the day, falling after a strong start this year, and analysts said that may have contributed to higher Treasury prices.

The economic backdrop around the world has also been far from ideal amid growth concerns, analysts said.

The Organization for Economic Co-Operation & Development on Wednesday cut forecasts again for the global economy in 2019 and 2020, following previous downgrades in November, as it warned trade disputes and uncertainty over Brexit would hit world commerce and businesses.

"It seems like the rally in risky assets seems to be running out of steam," said Subadra Rajappa, head of US rates strategy at Societe Generale in New York.

"Overall though, the market is trading sideways ahead of the ECB meeting and the US payrolls report. I wouldn't read too much into today's moves," she added.

US rates typically track German bond yields on the day of an ECB policy meeting.

Weak euro zone data the last couple of weeks has fueled expectations that the ECB at Thursday's meeting could downgrade its growth and inflation forecasts for 2019 and hold off raising interest rates, analysts said.

"A downgrade of the 2019, and maybe 2020, GDP projection won't come as a surprise," Macquarie said in a research note.

"Indeed, the ECB's rhetoric has already signaled a cut in the growth outlook, and it has been the ECB's recurring theme to be in GDP-cutting mode since Q2 2018 anyway, when the first big cuts in 2018 growth projections took place," the bank added.

In the United States, a report by payrolls processor ADP showed that new private-sector jobs totaled 183,000, lower than market expectations of 189,000. But the January figure was revised higher to 300,000 from ADP's original estimate of 213,000.

Treasuries reacted little to the ADP report.

"The ADP report isn't always a reliable predictor of the BLS (Bureau of Labor Statistics) data, but it looks broadly consistent with our view that job growth remained solid in February despite cooling from the boomy figures reported for the prior several months," said Daniel Silver, economist at JP Morgan in New York.

Reuters forecasts showed nonfarm payrolls of 180,000 for February.

In midmorning morning trading, US 10-year note yields slipped to 2.704 percent from 2.722 percent late on Tuesday.

US 30-year bond yields also fell, to 3.072 percent from 3.087 percent on Tuesday.

On the short end of the curve, US 2-year yields were likewise down at 2.532 percent, compared with Tuesday's 2.551 percent.