Bond yields stable before payroll after a week of big price increases

Bond yields held steady Friday ahead of the release of the crucial jobs report, which could bring a March rate cut back into the picture depending on whether it is weak or not.

What is going on

  • The 2-year Treasury yield BX:TMUBMUSD02Y was 4.24%, up 2.5 basis points. Yields move in the opposite direction to prices.

  • The yield on the 10-year Treasury note BX:TMUBMUSD10Y was 3.89%, up 1.1 basis points.

  • The 30-year Treasury yield BX:TMUBMUSD30Y was 4.12%, down 0.1 basis point.

What drives the markets

Attention turns to the crucial nonfarm employment report, which is expected to show 185,000 jobs created in January with an unemployment rate of 3.8%. There have also been major revisions to key elements of the jobs report: payroll employment, hours worked and wage growth, as well as new population controls that will affect the unemployment rate.

“Low jobless claims and warm weather in early January suggest strong payrolls,” said economists at Morgan Stanley who forecast payroll growth of 215,000.

Going into the report, the market is pricing in a one in three chance of the Fed cutting rates in March.

The 10-year Treasury yield has fallen nearly 30 basis points over the past four days.

“This may be because investors observe that US regional banks remain under pressure. Or more likely it reflects the belief that policy rates are falling this year and there is no point in fighting this overwhelming trend,” said Chris Turner, head of currency strategy at ING.

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