TREASURIES-US yields fall on safe-haven demand as stocks drop

By Karen Brettell

NEW YORK, Nov 18 (Reuters) - U.S. Treasury yields fell on Tuesday as falling stock markets boosted demand for the safe-haven bonds and as weakening labor market indicators raised expectations that the Federal Reserve will cut rates next month.

U.S. stocks eased on Tuesday, with the S&P 500 set for a fourth day in a row of losses as valuation worries hit big technology-related shares.

“It's really all stocks at this point. We're starting to get a ‘risk off’ move and I think that's what's going on in the bond market,” said Tom di Galoma, managing director at Mischler Financial Group.

Weak labor market indicators have also raised some hopes of further easing. Fed funds futures traders are now pricing a 45% probability of a December cut, up from around 40% on Monday.

The U.S. federal government has begun releasing economic data that was delayed by the U.S. government shutdown that ended last week after a record 43 days.

The number of Americans on jobless benefits surged between mid-September and mid-October, government data showed on Tuesday, suggesting an elevated unemployment rate in October.

A report from ADP, meanwhile, showed private employers shed an average of 2,500 jobs a week during the four weeks ending November 1.

Analysts also cited data from the Cleveland Fed showing that 39,000 Americans were given advance notice of layoffs last month.

The 2-year note US2YT=RR yield, which typically moves in step with Fed rate expectations, was last down 2.7 basis points on the day at 3.583%. The yield on benchmark U.S. 10-year notes US10YT=RR fell 1 basis point to 4.123%.

The yield curve between two-year and 10-year notes US2US10=TWEB steepened to 54 basis points.

Fed Governor Christopher Waller said on Monday U.S. firms have begun talking more frequently about layoffs as they plan for weaker demand and possible productivity gains from artificial intelligence, in remarks that continued to build the case for further rate cuts.

But several regional Fed officials have expressed concerns in recent days about further easing due to sticky inflation.

“Besides Waller talking about a cut in December, everybody else has been fairly hawkish for the most part,” said di Galoma.

Richmond Fed President Thomas Barkin said on Tuesday he hopes coming data and ongoing community interviews will help clarify where the economy is heading.

This week’s main release will be September’s monthly jobs report on Thursday. Economists polled by Reuters expect the report will show that employers added 50,000 jobs during the month. USNFAR=ECI

However, the delay in the releases and collection issues from when the government was closed will reduce the quality of the data over the coming months.

U.S. President Donald Trump said on Tuesday he was speaking with various people about the Fed chairman's job and had some unexpected candidates on the list of those who might replace Jerome Powell.