Treasury Market Erases Positive factors as Fed’s Powell Praises Financial system

US authorities bond yields rose Friday after feedback by Fed Chair Jerome Powell tamped down expectations the central financial institution might resume slicing rates of interest as quickly as Could. 

Earlier within the session, these expectations had been buoyed by February employment information that, whereas not weak, was softer than economists’ median estimates. The ensuing Treasury market rally briefly drove yields throughout maturities towards year-to-date lows reached earlier this week. In late buying and selling they had been greater by as a lot as six foundation factors.

The bond market prior to now month has been caught between indicators that US financial progress is slowing — and will gradual additional because of a raft of latest federal authorities insurance policies together with tariffs and spending cuts — and sticky inflation that makes Fed policymakers reticent to decrease rates of interest too quickly.

The February jobs information left intact merchants’ expectations for about three quarter-point cuts later this 12 months. These expectations ebbed barely after Powell, answering questions after a speech in New York Friday, mentioned, “the economic system’s high quality. It doesn’t want us to do something, actually, and so we will wait and we must always wait.”

“Powell didn’t categorical any fear on the economic system and the market took that to coronary heart, driving yields greater,” mentioned Chris Ahrens, a strategist at Stifel Nicolaus & Co. “To me the Fed continues to be on maintain right here, and the extent of uncertainty is simply very excessive.”

Yields climbed after Powell’s feedback, in tandem with US fairness indexes, with extra assist from expectations that Monday will convey a rebound within the provide of latest company bonds. 

This week’s yield lows had been reached amid a stock-market selloff because the US imposed tariffs on main buying and selling companions.

The tariffs agenda and large-scale federal authorities job cuts posed draw back danger to the employment information. Whereas the report discovered that February job creation fell in need of the median estimate and the unemployment price unexpectedly rose, it left an general view of a labor market that’s hanging in. 

“The Treasury market is concentrated on the rise within the unemployment and underemployment charges,” mentioned Angelo Manolatos, a charges strategist at Wells Fargo. “Whereas the report might alleviate worst-case fears, it nonetheless reveals some weakening within the labor market. And extra weak spot in authorities employment figures is within the pipeline for subsequent months.”

Whereas merchants proceed to nearly totally value in three quarter-point Fed price cuts over the seven remaining coverage conferences this 12 months, the quantity of easing priced into the Could contract declined to about eight foundation factors after Powell’s feedback, from about 12 foundation factors at Thursday’s shut. 

Treasury two-year yields rebounded to 4.02% from as little as 3.89%. They fell to a five-month low of three.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 till April 2. 

The outlook for Fed price cuts stays extremely unsure as inflation stays above the central financial institution’s 2% long-term inflation purpose. Policymakers minimize charges thrice final 12 months in response to indications the labor market was softening and paused in January. Wall Avenue expectations for coverage vary from no additional motion to as many as 5 quarter-point cuts this 12 months.

“We’re nonetheless within the camp that the Fed is on maintain for some time,” Kathy Jones, chief mounted revenue strategist at Charles Schwab mentioned on Bloomberg Tv. “Proper now we’re simply bouncing round in a spread,” she mentioned, referring to Treasury yields.

By way of Thursday, the US Treasury market had gained 2.24% in 2025 as measured by a Bloomberg index. Yields throughout maturities initially climbed, with the 10-year reaching 4.81% on Jan. 14. This week’s excessive, 4.34%, was reached Thursday after the tariff exemptions had been introduced. 

Kevin Flanagan, head of mounted revenue technique at Knowledge Tree, mentioned “the bond market was on the lookout for causes to purchase” and the roles information equipped one. 

After the info, the Treasury choices market noticed heavy demand for wagers that revenue if 5-year yields fall to about 3.85% inside a few weeks, from about 4.10% following Powell’s feedback Friday.

Bullish sentiment rests partly on the idea that federal authorities job and spending cuts will ripple by the economic system within the coming months. 

“The bond market is inserting a chip on the potential for that being the case,” Flanagan mentioned.

Treasury Secretary Scott Bessent, talking on CNBC Friday, mentioned the US has develop into hooked on authorities spending, and “there’s going to be a detox interval” because it strikes away from it.

“There’s going to be a pure adjustment as we transfer away from public spending” he mentioned. “The market and the economic system have simply develop into hooked.”

US Treasuries earlier than the roles report had been headed for his or her first weekly loss in nearly two months as European authorities bond yields surged and Trump’s on-again, off-again tariff drove intraday volatility. 

With help from Edward Bolingbroke and Cécile Daurat.

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