Rates spark: Treasuries ranging but poised for a breakout

We could be in this 4% to 4.1% trading range (US 10yr yield) for a bit before we break out. We'd view a break below as temporary (perhaps into the turn of the year), and a break above as more structural, certainly something for 2026.

Treasuries love that 4% to 4.1% trading range. Temporary break below more likely. But break above has more legs

The US ADP employment report printed negative for November, at -32k. It also printed negative in September, August and June this year, whereas there were no negative prints last year. Things have certainly slowed. But Treasuries have built a bit of resilience to the weak jobs narrative. Partly as there are fewer immigrants coming into the country in net terms, requiring less employment generation. But also as its productivity growth rather than employment growth driving things into the future (AI, among others).

The 10yr yield was lower ahead of the data, and despite the above caveats, this ADP number should have given it a further push lower. But instead it held (at around 4.06%). Import prices also came in for September (a bit of a lag) – very subdued; statistically zero (or close to) whether month-on-month or year-on-year. At least the tariff risk is not being exacerbated by higher import prices. Export prices were up to 3.8% though – that's the highest rate in about three years, but nowhere near as high as the 15+% rates we saw in 2021/22. Overall, these are mostly second-tier data, and do not have a huge impact on levels. Industrial production data and ISM services came in too, but to little effect.

The issue here is a market lacking a good enough reason to break below 4%. And at the same time, there's a reluctance to push on higher above 4.1%. Friday's PCE data might give the sub-4% camp a boost, especially if we were to get a 0.1% MoM outcome (not impossible). On the more likely 0.2% outcome, we'll then roll on into next week and the pre-FOMC run-in. The Challenger report on Thursday is another big one, potentially. But last month's big layoffs were in the end negated by low jobless claims right through that month.

We could be in this 4% to 4.1% trading range for the 10yr yield for a bit before we break out. We'd view a break below as temporary (perhaps into the turn of the year), and a break above as more structural (certainly something for 2026).

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