US yields lower as investors look to payrolls data after Fed meeting

NEW YORK – US Treasury yields slipped on Thursday as investors settled into a wait-and-see stance ahead of a monthly employment report next week that is expected to offer clearer signals on labor market momentum and the likely pace of interest rate cuts in 2026.

Market participants also expect an agreement to negotiate new restrictions on US federal immigration agents, potentially averting a government shutdown over the weekend.

In late afternoon trading, the yield on the benchmark US 10-year Treasury note fell 1.2 basis points to 4.235% and the 30-year bond yield was flat at 4.856%.

While the Federal Reserve’s decision on Wednesday to hold rates unchanged had a muted impact on the Treasuries market overall, US central bank chief Jerome Powell expressed an upbeat view of economic conditions in the near term and also left the door open for further rate cuts during the year depending on incoming data.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 2 basis points, at 3.561%.

Investors are also banking on a potential deal in the US Senate that would carve out legislation funding the Department of Homeland Security from a package of spending measures required to fund the military, health programs and other federal agencies. Those agencies include the Department of Labor and the Bureau of Labor Statistics.

This outcome would mean that the BLS would be able to release the payrolls report for January next Friday. The BLS is also expected to release revisions to previous payrolls data.

The proximity to the end of the month is also expected to help the bond market through Friday, according to Tom di Galoma, managing director at Mischler Financial Group in Park City, Utah. “I expect some rotation from equities to fixed income in these last days.”

STEEPENING YIELD CURVE

The yield curve steepened earlier in the day, but ended the session flat compared to Wednesday. The gap between two- and 10-year Treasury notes hit 68.4 basis points before retreating to 67 basis points, the same level seen late on Wednesday.

Analysts said the dollar’s slide to multi‑year lows this week, along with a sharp rise in commodity prices, has helped steepen the curve over the last weeks. They added that these factors could continue to support further steepening in the coming months.

“We expect the gap between the two and the 10-year yields to hover between 60 and 70 points in the near term, but the curve can further steepen later in the year”, said Vail Hartman, US rates strategist at BMO Capital Markets.

Speculation on a potential US military attack on Iran pushed oil prices to their highest levels in six months, and the price of copper reached a record high on Thursday.

Markets are keeping an eye on the announcement of a nominee to replace Jerome Powell as Federal Reserve chief when his term ends in May. Investors are scrutinizing the candidates to try to gauge their willingness to keep the Federal Reserve’s independence.

Also on Thursday, the Treasury auctioned USD 44 billion in seven-year notes to lackluster results. It was priced at 4.018%, slightly higher than the expected yield at the bid deadline, suggesting soft demand. The auction yield was higher than the six-auction average of 3.912%, according to BMO’s numbers.

(Reporting by Tatiana Bautzer; Editing by Gertrude Chavez-Dreyfuss, Paul Simao, and Deepa Babington)