Insights

US Treasuries

• The 10-year Treasury yield is currently 4.16%, 14 basis points higher since last Monday morning. 10-year bonds traded in a 29-basis point range (3.92% - 4.21%).
• 2-year Treasuries are at 3.60% this morning, 16 basis points higher than last Monday.

10‑year Treasury yields are up another 4 bps this morning from Friday as crude oil pushes above $100/barrel, after briefly nearing $120 overnight. Overnight headlines included a Greek oil tanker successfully getting through the Strait of Hormuz (and about 1,000 ships remain stuck) and G7 countries discussions about a coordinated release of oil reserves.

Last week, Treasuries traded in a wide range—starting with a flight‑to‑quality bid as the Iran war broke out, then selling off as crude surged and inflation concerns re‑emerged. On Friday, February non‑farm payrolls came in close to –100k (vs. +126k in January), raising stagflation worries and pushing equities lower. Yields initially dipped on the weak print but then moved higher, reflecting the market’s focus on the flation side of stagflation, particularly if the conflict with Iran drags on.

Last Week’s Economic Data (Selected Highlights)

• US Employment Report (Feb):   Nonfarm payroll printed at -92,000 jobs lost, after January’s employment was substantially better than expected (+126k as revised).  The 3-month average is now a meager +6k per month; the unemployment rate moved back higher to 4.4%, +1/10^th.   January’s and February’s numbers need to be viewed together and present a picture of a low hiring/low firing economy, which we knew.  Steve Stanley, Santander economist, pointed out that individual readings in the winter months are typically volatile.
• ADP Employment Report (Feb): ADP reported +63,000 net new jobs for February, versus 5k expected and 11k in January, as revised.
• Challenger Job Cuts (Feb): According to outplacement firm Challenger, Gray & Christmas, employers reported 48,307 job cuts in February, down 55% from the 108,435 layoffs in January.
• Weekly Initial Jobless Claims – Unemployment claims for the week ended 2/23 printed at a subdued 213,000, the same as the previous week, as revised, and just below the pre-announcement forecast (215k). The 4-week moving average is 215.75k.  The 2025 average was 226k, 2023 and 2024 average was 223k.

Fed Monetary Policy

The next FOMC meeting will be on March 17^th and 18^th. Despite last Friday’s weak jobs report, the consensus is that one negative data point isn’t sufficient for the Fed to cut rates this month. The Fed’s dual mandate requires balancing employment and price stability, and the Iran conflict is pushing crude oil prices higher; this could reignite inflation if the conflict is prolonged.

As for the February jobs report, several one‑off factors contributed to the weakness, including severe weather, a nurses’ strike in California, and a normalization after an unusually strong January. Most indicators still point to a labor market that is slowing but stable, so the February headline number alone is unlikely to alter Fed policy.

The Fed Funds target range remains at 3.50%–3.75% and viewed as slightly restrictive. Two‑year Treasury yields more directly reflect Fed policy expectations; 2-year yields rose 12 bps last week, reflecting the market scaling‑back expectations for rate cuts.

Based on the current shape of the yield curve, the market is pricing-in about 39 basis points of rate cuts by year end 2026. The first 25 bp cut is now implied in mid-September, a further delay compared with earlier expectations for a cut at the June or July meeting.

My Take on Longer Term Yields

A week ago, markets initially reacted to the outbreak of war with Iran with a classic flight‑to‑safety, pushing the 10‑year Treasury yield below 3.95%. Since then, sentiment shifted toward concerns about a prolonged conflict and the risk of disruptions to crude oil shipments through the Strait of Hormuz—raising fears of higher oil prices and renewed inflation pressures. Even before this added geopolitical risk, consumer and producer inflation had been stuck near 3%.

The bad miss on the February jobs report, negative 92,000 jobs, had 10-year yields gap lower by 5 basis points initially, but that quickly reversed back to 4.15% as economists and traders dismissed its significance based on one-off factors as discussed above. Other second-term data, including the ADP report, Challenger Jobs layoffs and weekly unemployment claims reflect a stable job market. That said, this February jobs report could foretell a deeper labor market problem.  

I lean to think that the labor market is demonstrably weaker and 10-year yields should be at 4% or below -- without the Iran war.  The problem for yields is that the war likely continues until Iran surrenders unconditionally – raising the risk that higher crude prices turn into supply chain disruptions and reignite inflation.

This Coming Week’s Economic Data (see attached)

This week we see both CPI (consumer prices) for February on Wednesday and PCE inflation data for January on Friday.  On Friday we also receive the JOLTS job openings report, University of Michigan Consumer Sentiment and a 2^nd read of GDP Q4. The US Treasury also actions 3-year, 10-year and 30- year bonds this week. 

The information provided in this article, including, without limitation, any opinions, predictions, forecasts, commentaries or suggestions, is for informational purposes only and should not be construed to be professional or personal investment, financial, legal, tax or other advice.