(Bloomberg) — US government bond yields rose Friday after comments by Fed Chair Jerome Powell tamped down expectations the central bank could resume cutting interest rates as soon as May.
Most Read from Bloomberg
Earlier in the session, those expectations were buoyed by February employment data that, while not weak, was softer than economists’ median estimates. The resulting Treasury market rally briefly drove yields across maturities toward year-to-date lows reached earlier this week. In late trading they were higher by as much as six basis points.
The bond market in the past month has been caught between signs that US economic growth is slowing — and may slow further as a result of a raft of new federal government policies including tariffs and spending cuts — and sticky inflation that makes Fed policymakers reticent to lower interest rates too soon.
The February jobs data left intact traders’ expectations for about three quarter-point cuts later this year. Those expectations ebbed slightly after Powell, answering questions after a speech in New York Friday, said, “the economy’s fine. It doesn’t need us to do anything, really, and so we can wait and we should wait.”
“Powell did not express any worry on the economy and the market took that to heart, driving yields higher,” said Chris Ahrens, a strategist at Stifel Nicolaus & Co. “To me the Fed is still on hold here, and the level of uncertainty is just very high.”
Yields climbed after Powell’s comments, in tandem with US equity indexes, with additional support from expectations that Monday will bring a rebound in the supply of new corporate bonds.
This week’s yield lows were reached amid a stock-market selloff as the US imposed tariffs on major trading partners.
The tariffs agenda and large-scale federal government job cuts posed downside risk to the employment data. While the report found that February job creation fell short of the median estimate and the unemployment rate unexpectedly rose, it left an overall view of a labor market that’s hanging in.
“The Treasury market is focused on the rise in the unemployment and underemployment rates,” said Angelo Manolatos, a rates strategist at Wells Fargo. “While the report may alleviate worst-case fears, it still shows some weakening in the labor market. And more weakness in government employment figures is in the pipeline for subsequent months.”
While traders continue to almost fully price in three quarter-point Fed rate cuts over the seven remaining policy meetings this year, the amount of easing priced into the May contract declined to about eight basis points after Powell’s comments, from about 12 basis points at Thursday’s close.
Treasury two-year yields rebounded to 4.02% from as low as 3.89%. They fell to a five-month low of 3.84% Tuesday, when US tariffs on imports from Canada, Mexico and China drew reprisals. US President Donald Trump Thursday paused the tariffs on Mexican and Canadian imports until April 2.
The outlook for Fed rate cuts remains highly uncertain as inflation remains above the central bank’s 2% long-term inflation goal. Policymakers cut rates three times last year in response to indications the labor market was softening and paused in January. Wall Street expectations for policy range from no further action to as many as five quarter-point cuts this year.
“We are still in the camp that the Fed is on hold for a while,” Kathy Jones, chief fixed income strategist at Charles Schwab said on Bloomberg Television. “Right now we are just bouncing around in a range,” she said, referring to Treasury yields.
Through Thursday, the US Treasury market had gained 2.24% in 2025 as measured by a Bloomberg index. Yields across maturities initially climbed, with the 10-year reaching 4.81% on Jan. 14. This week’s high, 4.34%, was reached Thursday after the tariff exemptions were announced.
Kevin Flanagan, head of fixed income strategy at Wisdom Tree, said “the bond market was looking for reasons to buy” and the jobs data supplied one.
After the data, the Treasury options market saw heavy demand for wagers that profit if 5-year yields fall to about 3.85% within a couple of weeks, from about 4.10% following Powell’s comments Friday.
Bullish sentiment rests in part on the assumption that federal government job and spending cuts will ripple through the economy in the coming months.
“The bond market is placing a chip on the potential for that being the case,” Flanagan said.
Treasury Secretary Scott Bessent, speaking on CNBC Friday, said the US has become addicted to government spending, and “there’s going to be a detox period” as it moves away from it.
“There’s going to be a natural adjustment as we move away from public spending” he said. “The market and the economy have just become hooked.”
US Treasuries before the jobs report were headed for their first weekly loss in almost two months as European government bond yields surged and Trump’s on-again, off-again tariff drove intraday volatility.
–With assistance from Edward Bolingbroke and Cécile Daurat.
(Adds Powell comments, updates yield levels.)
Most Read from Bloomberg Businessweek
©2025 Bloomberg L.P.
