TREASURIES-US bonds rally as AI rout grips risky assets

SINGAPORE, Feb 6 (Reuters) - Treasuries headed for their best week since November on Friday, as soft jobs figures and a meltdown in equity markets drove a flight to safety and ramped up bets on U.S. interest rate cuts.

Investors are selling anything they think is at risk of being replaced by artificial intelligence, wiping $1 trillion off the value of U.S. software stocks in a week.

Markets took a jump in layoffs and lacklustre hiring in overnight data as a warning AI was coming for the job market.

Benchmark 10-year yields US10YT=RR fell almost seven basis points in New York and dropped further in Tokyo trade, before steadying around 4.19%, down about five bps on the week.

The two-year yield US2YT=RR, which typically reflects near-term rate expectations, slid to a four-month low of 3.4260% on Friday, for a 15 bp drop in two weeks.

Expectations for a rate cut in June are running at 80%, up from less than 60% a day ago, according to CME's FedWatch tool.

"I would say there is a plethora of half-decent evidence that a lot of the hiring slowdown has been in industries that feel threatened by AI," said Andrew Lilley, chief rates strategist at Barrenjoey, Sydney.

"We've seen a little wobbliness in the last 48 hours in the U.S. Treasury market as a consequence, because there's a chance that the U.S. might restart a rate-cutting cycle."

Focus is on next week's delayed January nonfarm payrolls data, for a broader read on the job market.

"AI is impacting entry-level college graduates... So unemployment rates are just going up because the first job you can cannibalise is entry-level, and then it goes up... there is that underlying fear that it could be more than people expect," said Prashant Bhayani, chief investment officer for Asia at BNP Paribas Wealth Management.

"The nonfarm payrolls next week will be key to that."