Yields mixed as traders evaluate data, Warsh’s Fed impact

NEW YORK – US Treasury yields were mixed on Wednesday as traders waited on delayed US economic data and continued to evaluate the impact that incoming US Federal Reserve Chair Kevin Warsh is likely to have on monetary policy.

The government’s closely watched jobs report for January has been pushed back to next Wednesday, from its previously scheduled release on Friday, due to a four-day partial government shutdown that ended on Tuesday.

In the meantime, the ADP’s national employment report on Wednesday showed that US private payrolls increased less than expected in January amid job losses in professional and business services as well as in manufacturing sectors.

Robert Tipp, chief investment strategist at PGIM Fixed Income, said the ADP data did not alter market expectations for two 25-basis-point cuts this year. “The risk for bonds is stronger US economic growth,” he said.

The 2-year note yield, which typically moves in step with Fed interest rate expectations, fell 1.5 basis points to 3.557%. The yield on benchmark US 10-year notes rose 0.3 basis points to 4.276%.

The yield curve between two- and 10-year notes steepened by around two basis points, to 71.7 basis points.

Traders in Fed funds futures are pricing in two 25-basis-point cuts this year on concerns about a weakening jobs market and on expectations that Warsh will oversee a more dovish Fed when Jerome Powell’s term as chair ends in May.

However, stronger growth and a renewed uptick in inflation could complicate this outlook. Warsh has also argued for the Fed to reduce the size of its balance sheet, which would tighten financial conditions. He has said large Fed holdings distort finances in the economy.

“The story has been, you will tighten by shrinking the balance sheet, and you’ll ease by cutting rates. And then there’s a disagreement on the inflation picture … that AI is going to result in reduced inflation,” Tipp said.

“That has created a lot of uncertainty. Markets by and large have dealt with it by hunkering down and not moving very much,” he added.

Any shift in the Fed’s balance sheet policy would likely depend on changes to bank regulations and would be unlikely to occur in the short term, analysts said.

US Treasury Secretary Scott Bessent said on Wednesday that the independence of the Fed was based on Americans’ trust of the central bank, which it lost because it allowed inflation to get out of control and “ravage” their incomes.

Other data on Wednesday showed that the US services sector held steady in January but businesses paid more for inputs, suggesting that services inflation could pick up after a slowing trend in recent months.

The Treasury Department also said on Wednesday it does not expect to lift the size of auctions for notes and bonds for several more quarters, matching market expectations, as it outlined a USD 125 billion refunding for February to April 2026.

(Reporting by Karen Brettell; Editing by Alexander Smith and Edmund Klamann)