U.S. Treasuries rallied Wednesday, driving yields lower, as persistent concerns over labor market weakness deepened after a private survey Tuesday signaled job softness, bolstering expectations for a Federal Reserve rate cut next month.

Because the U.S. bond market was closed Tuesday for Veterans Day, investors had their first chance to price in the data on Wednesday.

Tuesday's weekly jobs data from ADP showed private employers shed an average of 11,250 jobs a week in the four weeks ending on October 25.

"The market is paying attention to the ADP number yesterday and people are thinking that job growth is going to be particularly weak here, not only for October, but also for November," said Stan Shipley, managing director and fixed income strategist at Evercore ISI.

"So when the actual data comes out, we could have minus 30,000 or so for October. And we may wind up with another negative number for the month of November, and then that brings a whole different dynamic into what the market was expecting."

In morning trading, benchmark 10-year yields were down 3.9 basis points at 4.071%, while the 30-year yields slid 3.5 bps to 4.677%.

U.S. two-year yields, which reflect interest rate expectations, slipped 2.5 bps to 3.564%.

The yield curve modestly flattened on Wednesday, as the spread between U.S. two-year and 10-year yields narrowed to 50.3 bps, from 52.3 bps late on Monday.

The yield curve exhibited a bull flattening scenario, with long-term yields declining more sharply than short-term rates -- a pattern that often reflects heightened demand for duration, signaling risk aversion or expectations of softer inflation, and historically tends to precede a Fed rate cut.

U.S. rate futures priced in a 65% chance of a rate cut next month, according to LSEG calculations, with about 80 bp of easing expected by the end of 2026.

Policymakers and investors have been flying blind for a few weeks as the U.S. government shutdown has halted data publication. Congress is moving toward approving a reopening deal and investors expect that September payrolls may be among the first sets of delayed data to be published.

Also on Wednesday, the U.S. Treasury will sell $42 billion in new 10-year notes, with the volume unchanged from the last new auction issue.

J.P. Morgan said in a research note that U.S. 10-year Treasury yields were relatively unchanged since the last auction, but were roughly 17 bps above lows hit in mid-October.

"Even after this recent rise in yields, the 10-year sector appears roughly 16 bps too low after controlling for market-based Fed, inflation, and growth expectations, as well as the Fed’s balance sheet as a share of GDP and a dummy variable to capture tariff uncertainty," it said.

The U.S. bank said that given the richness of the intermediate sector on both a fundamental and relative value basis, the auction would likely require a bigger selloff in the 10-year note in order to be digested smoothly.