US Treasuries
- The 10-year Treasury yield is currently 4.22%, 3 basis points lower this past week. 10-year bonds traded in a 14-basis point range this past week (4.16% to 4.30%).
- 2-year Treasuries are at 3.49% this morning, 5 basis points lower since last Monday morning.
Trading Recap - At the beginning of last week, the 10-year bond traded to the high end of the range after the ISM Manufacturing Index surprised to the upside, rising to 52.6 versus expectations of 48.5 and a prior reading of 47.9; above 50, returning to expansion territory. 10-year bonds traded in a narrow 4 basis points range until Thursday morning when yields moved lower throughout the day after a string of weak labor data (discussed below). The bond-friendly jobs data along with a sharp trade-off in equities, precious metals and commodities drove a flight to safety and the 10-year yield down to 4.16% briefly in the evening session on Thursday. Yields moved back 5 basis points higher on Friday with dip buyers stabilizing equities.
Last Week’s Economic Data (Selected)
The economic data printed meaningfully softer on labor - with weak ADP jobs print, a sharp spike in announced Challenger job layoffs, higher initial jobless claims, and a sizable decline in JOLTS openings. The official BLS employment report was delayed by the brief government shutdown and is now due this Wednesday. In contrast, the soft data (surveys) remained resilient, with both ISM and S&P PMI in modest expansion (above 50) and consumer sentiment improving, even as longer term inflation expectations remain sticky.
Hard Data
- ADP Employment Report Jan: ADP is reporting just 22,000 net new jobs for January, versus 45k expected and 37k in December, as revised.
- Challenger Job Cuts: For January, US employers announced 108,435 layoffs, up 118% from the same period a year ago and just over 3x December’s print (35.53K). January marked the highest for any January since 2009 and largely reflects big reduction numbers from Amazon (16k layoffs) and UPS (30k layoffs).
- Weekly Initial Jobless Claims – unemployment claims printed higher the week ended 1/31 to 231,000, above 212k average expectation and the previous week at 209. The 4- week moving average is 212.25k. 231k is not too far away from the historical average - the 2025 average was 226k, 2023 and 2024 average was 223k.
- JOLTS Job Openings Report (Dec) – after a 2-day delay, JOLTS Job Openings printed at 6.542 million, a significant downturn in available job postings (down from 6.928 previously, as revised).
Soft Data (Surveys)
- S&P Global US Manufacturing Purchasing Managers’ Index (PMI, Jan Forecast): Manufacturing PMI printed at 52.4, slightly better than the prior read (51.9) and marginally in expansion territory (above 50).
- S&P Global US Services Purchasing Managers’ Index (PMI, Jan Forecast): Services PMI printed at 52.7, slightly better than the prior read (52.5) and also marginally in expansion territory.
- S&P Global US Composite Purchasing Managers’ Index (PMI, Jan Forecast): Composite PMI printed at 53, slightly better than the prior read (52.8) and again, also marginally in expansion territory.
- ISM Manufacturing PMI Jan: 52.6 versus 47.9 in December; also marginally in expansion territory.
- ISM Services PMI Jan: 53.8, the same as the previous read and also above 50.
- University of Michigan Consumer Sentiment (Feb preliminary) - UMich consumer sentiment registered at 57.3, versus 56.4 in January, and 55 forecast. UMich consumer survey showed inflation expectations at 3.5% for the next year (versus 4.0% previously) and 3.4% for the 5–10-year period (versus 3.3% previously).
Fed Monetary Policy
12 days ago, the Fed kept the Fed Funds rate range unchanged at 3.50% - 3.75% -- that’s after 0.75% in rate cuts at the previous three FOMC meetings (three 0.25% cuts). There’s no good read yet on the Fed’s next move on interest rates. At the January 28th FOMC press conference, Chair Powell was non committal on further cuts, noting that policy is at the upper end of neutral and that the Fed is comfortable holding rates steady while assessing how inflation and labor market conditions evolve in the coming months. Powell struck a constructive tone on inflation moving towards the Fed’s 2% target. Meanwhile, Atlanta Fed President Raphael Bostic said Friday morning that the Fed must remain vigilant in its effort to return inflation to its 2% target. Looking ahead, Wednesday’s delayed U.S. employment report could provide a clearer read on labor market health, particularly given recent signs of softening in the most recent labor market data.
The overnight Fed Funds rate is 3.64% (target range 3.50%-3.75%). As implied by the shape of the yield curve, the bond market anticipates a ¼ point rate cut in June and then a 2nd ¼ point cut in the 4th quarter.
My Take on Longer Term Yields
The labor data this past week pointed softer including a weak ADP employment report, an uptick in Challenger job cuts/layoffs, lower JOLTS job openings, and a notable rise in weekly initial jobless claims (albeit just one weekly data point). Further deterioration in labor market will push the Fed to lean more heavily on its full employment mandate, placing additional downward pressure on longer term yields. The delayed U.S. employment report for January, now scheduled for Wednesday, could be market-moving; a weaker print would be supportive for rates. As a baseline, the December employment report had non-farm payrolls increasing a modest +50k and the unemployment rate edged down one tenth to 4.4%. Forecasters are expecting job growth of +69k and no change in the employment rate; we shall see.
Further improvement in 10-year rates requires validation from incoming inflation and employment data. Powell’s comments at the FOMC press conference (1/28) were encouraging. He presented a bond-friendly inflation outlook, noting that services inflation remains on track toward the Fed’s 2% target and goods inflation should follow once tariff related price pressures work through the system. With a backdrop of subdued inflation prints, softer employment data, and a leadership change at the Fed with Kevin Warsh assuming the role of Chair in May, the stage is set for the 10 year Treasury yield to move toward 4% or below over the next few months.
This Coming Week’s Economic Data
This week’s economic releases have the potential to move interest rates. Tomorrow morning, we will see the retail sales report (Dec), an important gauge of consumer spending and a key input to GDP. On Wednesday, the delayed January U.S. employment report; jobs growth is forecasted to rebound to 70,000, along with unemployment rate at 4.4%, no change. On Friday, we will see January CPI; the consensus expectation for Core CPI inflation to rise +0.3% month over month.