TREASURIES-US yields tick higher, bond rally pauses after payrolls data revision

By Alden Bentley

NEW YORK, Sept 9 (Reuters) - U.S. Treasury yields rose on Tuesday as a long-end bond-buying frenzy abated, but briefly dipped after a benchmark jobs data revision came in on the weaker side and gave more weight to the weakening labor market outlook that already had traders boosting expectations for more Federal Reserve interest rate cuts this year.

The U.S. economy likely created 911,000 fewer jobs in the 12 months through March than previously estimated, compared with estimates from economists that had ranged between 400,000 and 1 million jobs, suggesting that job growth was already stalling before President Donald Trump's aggressive tariffs on imports.

That data followed a weak nonfarm payrolls report last week that showed a gain of only 22,000 jobs in August, which lifted bond prices and sent the 10-year and 30-year yields to their lowest levels in several months.

"Certainly the Fed is already geared to cut rates based on weaker jobs, the job situation as a whole. This does nothing to dissuade the Fed from moving 25 basis points," said Paul Nolte, senior wealth advisor and market strategist at Murphy & Sylvest in Chicago.

"It's a little bit more than expected. We don't know month by month and won't for a few more months yet, but it points out that labor is weak."

Signs of labor market weakness have all but guaranteed that the Fed will cut rates for the first time since December at its September 16-17 meeting. The question now is how much it will cut by and how aggressive it will be in the face of mounting evidence that its mandate to promote employment is shaping up as an equal challenge to its other imperative of controlling inflation.

Markets are fully pricing in a cut of at least 25 basis points next week, with expectations for an outsized 50-basis-point cut at about 8%, according to CME Group's FedWatch Tool.

But traders are also reluctant to get too far ahead of themselves before the release on Thursday of the Consumer Price Index report. The Fed's decision could become complicated if the CPI report comes in much hotter than the 0.3% expected by economists polled by Reuters and the 0.2% rise in July.

The yield on the benchmark U.S. 10-year Treasury note US10YT=TWEB rose 2.8 basis points to 4.074% after briefly hitting a session low of 4.04% after the benchmark revision jobs data. The yield on the 30-year bond US30YT=TWEB climbed 3.7 basis points to 4.727%.

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 54.3 basis points.

The two-year US2YT=TWEB U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, gained 3.4 basis points to 3.529%.