TREASURIES-US Treasury yields fall as labor market data raises rate cut hopes

By Chuck Mikolajczak

NEW YORK, March 7 (Reuters) - U.S. 10-year Treasury yields fell on Friday after a reading on the labor market pushed up market expectations for the amount of rate cuts from the Federal Reserve this year.

The Labor Department said nonfarm payrolls increased by 151,000 jobs last month, just below the 160,000 estimate of economists polled by Reuters, after rising by a downwardly revised 125,000 in January. The jobless rate ticked up to 4.1% from 4.0% in January.

Treasury yields have slipped in recent weeks as expectations the Fed will have more leeway for more rate cuts this year have grown due to indications the economy may be slowing.

Uncertainty surrounding President Donald Trump's tariff announcements and their effect on prices, and the labor market impact from actions by the Department of Government Efficiency under Elon Musk to downsize the federal government, have also fueled economic worries.

"While federal employment fell 10,000, the survey was done prior to the large layoffs, so we are likely to see government serving as a drag on payroll growth," said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

"The market is back to pricing in three rate cuts in 2025, but I wouldn’t bank on the Fed sending any dovish signals anytime soon. With the unemployment rate at 4.1% and inflation still above target, they have no reason to change their messaging yet."

The yield on the benchmark U.S. 10-year Treasury note US10YT=TWEB fell 3.1 basis points (bps) to 4.251%. For the week, the 10-year yield is up about 3 basis points, on track to snap a five-week streak of declines.

The yield on the 30-year bond US30YT=TWEB fell 1.5 basis points to 4.564%.

There are growing market expectations that the Fed may have cushion for more rate cuts this year than recently thought due to a slowing economy. Traders are pricing in 78 basis points of cuts by the U.S. central bank this year, up from 73 basis points before the jobs data was released, according to LSEG data.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 31.1 basis points.

The two-year US2YT=TWEB U.S. Treasury yield, which typically moves in step with interest rate expectations, fell 2.6 basis points to 3.937% and is on pace for its fourth straight weekly decline.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=TWEB was last at 2.544% after closing at 2.562% on Thursday.

The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.319%, indicating the market sees inflation averaging about 2.3% a year for the next decade.