NEW YORK, Jan 31 (Reuters) - U.S. Treasury yields slid on Wednesday after the Federal Reserve left benchmark interest rates unchanged and said it doesn't expect to cut rates until there is more evidence that inflation is moving lower.
The rate decision
had been seen as a near certainty by markets and followed the release of data earlier in the day showing signs of cooling in the labor market. Investors' attention will now likely turn toward Friday's non-farm payrolls report, which could influence whether the Fed cuts rates in March as futures markets currently expect.
The yield on 10-year Treasury notes was down 7.7 basis points to 3.980%, leaving it near three-week lows. The yield on the 30-year Treasury bond was down 5.5 basis points to 4.223%.
U.S. labor costs rose less than expected in the fourth quarter, leading to the smallest annual increase in two years, the Labor Department said. Private payrolls, meanwhile, increased by 107,000 jobs last month, the ADP National Employment Report showed on Wednesday. Economists polled by Reuters had forecast private payrolls rising by 145,000. Job growth for December was revised lower as well.
"We continue to expect a moderation in wage gains in the coming months as labor market conditions soften and labor demand comes into better alignment with labor supply," said Gregory Daco, chief economist at EY.
The U.S. Treasury Department said on Wednesday it plans to continue gradually raising coupon auction sizes through April, but beyond that it does not expect further increases for at least the next several quarters.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 8.4 basis points at 4.275%.
(Reporting by David Randall; Editing by Andrew Heavens, Franklin Paul, Chizu Nomiyama and Leslie Adler)
