(Bloomberg) -- Treasuries hung onto gains after US jobs data fueled bets for an interest-rate cut this month from the Federal Reserve.

The two-year yield was little changed following a slide to 3.53% on Wednesday, its lowest level since Sept. 18. The 10-year note was also steady at 4.09% after a five basis-point drop. There was limited initial reaction to data from outplacement firm Challenger, Gray & Christmas on Thursday showing reduced hiring and firing in September.

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With a government shutdown potentially delaying a slew of key statistics — including the non-farm payrolls print on Friday — the report on jobs from ADP on Wednesday had a bigger-than-normal impact on the debt market. The closure itself could add to wagers on lower interest rates if a protracted shutdown deals the economy a blow, according to Elena Amoruso, strategist at UBS Investment Bank.

“A shutdown may be somewhat more of a rates-bullish event as a possible drag on activity,” she wrote in a note. Wednesday’s ISM readings also reinforced the picture of a weakening US economy, Amoruso said.

She recommended a tactical trade that envisages a widening in the spread between five-year and 30-year Treasuries to 106.5 basis points, from around 103 basis points at the moment. That move would be driven by the shorter yield falling on expectations of rate cuts, she said.

Traders are now betting on a more than 90% probability that the Fed will deliver a 25 basis-point rate cut this month.

Data Fog

The Bureau of Labor Statistics has said that weekly jobless claims data due later in the day and the monthly employment report scheduled for Friday are subject to delay if the shutdown is still in effect.

US consumer and producer price inflation reports scheduled for mid-October would also be at risk, with the Fed’s next rate decision scheduled for Oct. 29.

Given the dwindling chances of payrolls data being published on Friday, ING strategists predicted that the market will focus on next week’s release of the Fed’s Beige Book for more evidence of slowing employment. The August installment offered a “quite downbeat” picture of the jobs market, the strategists said.

In the past, shutdowns lasting two weeks had a “temporary impact” on the economy, said Kim Crawford, global rates portfolio manager at JPMorgan Asset Management, during an interview with Bloomberg TV.

“But the longer it lasts, the more the non-linear effects will kick through,” she said. A delay in government paychecks would hit general consumption, further slowing the economy, she said.

If the shutdown drags on, the fallout could start appearing in bond markets by the end of the week.

“Yields typically drop modestly during government shutdowns that last at least five days,” said Angelo Manolatos, an interest-rate strategist at Wells Fargo Securities.

(Updates with Challenger data in second paragraph and quote in final paragraph.)

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