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Treasuries Fall Sharply As Economic Optimism Reduces Appeal Of Safe Havens

Treasuries moved sharply lower over the course of the trading session on Wednesday, as optimism about an economic recovery reduced the appeal of safe havens like bonds.

Bond prices showed a steep drop in morning trading before moving roughly sideways in the afternoon. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 8.1 basis points to 0.761 percent.

With the significant increase on the day, the ten-year yield ended the session at its lowest closing level in nearly two months.

The sell-off by treasuries came as new economic data added to investor optimism about a quick recovery, including a report from payroll processor ADP showing the pace of private sector job losses slowed by much more than anticipated in the month of May.

ADP said private sector employment slumped by 2.76 million jobs in May after plummeting by a revised 19.557 million jobs in April.

Economists had expected employment to plunge by about 9.0 million jobs compared to 20.236 million job nosedive originally reported for the previous month.

"While the labor market is still reeling from the effects of the pandemic, job loss likely peaked in April, as many states have begun a phased reopening of businesses," said Ahu Yildirmaz, co-head of the ADP Research Institute.

Mark Zandi, chief economist at Moody's Analytics, which compiles the report with ADP, declared the "Covid-19 recession is over" following the release of the data.

A separate report from the Institute for Supply Management also showed the pace of contraction in the service sector slowed by even more than economists had been expecting.

The ISM said its non-manufacturing index rebounded to 45.4 in May after plunging to an eleven-year low of 41.8 in April.

A reading below 50 still indicates a contraction in service sector activity, but the index came in above economist estimates for a reading of 44.0.

The U.S. data came after survey results from IHS Markit showed China's service sector expanded for the first time in four months in May amid an easing of measures implemented to curb the spread of the coronavirus.

Reports on weekly jobless claims and the U.S. trade deficit may attract attention on Thursday, although trading activity may be somewhat subdued ahead of the release of the Labor Department's monthly jobs report on Friday.

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