Bond Market Looks to Jobs Data to Validate Rate-Cut Expectations

Risks are building for bond traders who’ve spent the last couple of weeks adding to bets on Federal Reserve interest-rate cuts this year.

Traders are biased toward selling into any Treasuries strength that might follow the US February jobs report due Friday, and are also less likely to snap up US bonds if they slip, a BMO Capital Markets survey showed yesterday.

That’s bad news for investors looking to nonfarm payrolls to give the market another boost following Fed Chair Jerome Powell’s dovish message this week. Treasuries rallied this week as investors rebuild wagers on at least three quarter-point rate cuts this year, with the 10-year yield falling almost 15 basis points since Monday.

Economists forecast an increase of 200,000 in nonfarm payrolls in February, which would be the lowest since November, according to a Bloomberg survey. The median estimate for year-on-year wage growth is 4.3%, while the unemployment rate is seen remaining at 3.7%.

With the report “expected to show only moderate slowing in labor markets, the front end pricing in elevated policy uncertainty, and yields in the middle of their three-month ranges, we also pare back on risk and recommend unwinding longs in five-year Treasuries,” JPMorgan Chase & Co strategists including Jay Barry wrote in a Thursday note.