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Treasury yields drift lower ahead of ADP jobs data, refunding announcement

U.S. government debt yields edged lower Wednesday as investors awaited a reading on July private-sector payrolls activity and details from the Treasury Department on its funding plans for the coming quarter.

What are yields doing?
What’s driving the market?

Investors have attributed a slide in yields, in part, to concerns about the spread of the delta variant of the coronavirus that causes COVID-19 and its possible impact on economic activity. China on Tuesday renewed mass testing in Wuhan, the city where the disease first emerged, as it deals with outbreaks. Some U.S. cities and regions have reimposed mask mandates or taken other steps to contain the spread.

Data on U.S. private-sector payrolls activity for July from ADP is due at 8:15 a.m. Eastern, though economists note that the figures are often not a reliable guide to the Labor Department’s official jobs report from month to month, which is due Friday. Economists look for the ADP data to show private-sector payrolls rose by 653,000 last month.

The Treasury Department on Monday said it expects to borrow $673 billion in the third quarter, which is $148 billion lower than previously estimated. The decline was driven, in part, by lower outlays than expected. The updated forecast includes an end-of-quarter cash balance of $750 billion. The estimates were clouded by a failure of Congress to raise or suspend the debt limit, which expired on Aug. 1.

Details of its borrowing plans will be released Wednesday morning.

What are analysts saying?

“We expect the focus [of the refunding announcement] to center on the debt ceiling and uncertainty about the federal budget rather than plans to fine-tune issuance plans in 2022,” said Jim Vogel, executive vice president at FHN Financial, in a note. “If that reading proves out, the [U.S. Treasury] curve should see mild steepening pressure.”

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