(Bloomberg) — US government bonds fell and were retaining the bulk of their losses late in New York, after mixed employment data left traders holding tight to expectations that the Federal Reserve will keep interest rates steady until later this year.
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The declines on Friday pushed the yield on policy-sensitive two-year Treasuries higher by 7 basis points to 4.29% as traders maintained bets for a quarter-point rate reduction in September. All told, the swaps market suggests around 35 basis points of rate cuts for this year, less than 50 percent odds of a second quarter-point reduction.
“This definitely takes away market expectations for the window to cut in March,” said Paresh Upadhyaya, director of fixed income and currency strategy at Amundi US Inc. “We are at a pause for now — maybe an indefinite pause if you throw in policy uncertainty.”
Nonfarm payrolls increased by 143,000 last month after a revised 307,000 gain in December, a Bureau of Labor Statistics report showed Friday. The BLS said the wildfires in Los Angeles, as well as severe winter weather in other parts of the country, had “no discernible effect” on employment in the month.
Lindsay Rosner, head of multi sector fixed income investing at Goldman Sachs Asset Management said the jobs report was “mixed” given the weaker headline gain for January while revisions were higher and the unemployment rate ticked lower. As such, she said “the Fed is likely to be cautious about reading too much into today’s report.”
Even after Friday’s moves, yields remain near their lowest levels of 2025, which were hit Wednesday after softer service-sector activity and the Treasury Department’s quarterly supply announcement. This week’s so-called Treasury refunding was the first one under Scott Bessent’s stewardship and suggested that increases remain several quarters away.
The 10-year yield, which rose to a peak of 4.81% in mid-January, has since dropped back toward 4.49%. It edged higher by five basis points on Friday after the labor data.
A sustained rally in the 10-year rested on “whether the jobs report would validate that move, and the data does not,” said Kevin Flanagan, head of fixed-income strategy at WisdomTree.
Traders have meanwhile been pricing in a protracted pause in rate reductions from the Fed as they grapple with an uncertain inflation and policy outlook. While the economy has shown resilience, inflation has proven stickier than anticipated — and above the Fed’s 2% goal of price stability.
