Treasuries fell and traders nearly wiped out their bets that the Federal Reserve would cut interest rates later this month after the unemployment rate for December fell more than expected and offset a softer headline jobs gain.
The decline in US government debt pushed yields higher across maturities by as much as three basis points on Friday after the report. Bond traders maintained an outlook for two rate cuts overall in 2026, with the first seen by mid-year.
“For us, the Fed will key off the unemployment rate more than the noise in the headline,” said John Briggs, head of US rates strategy at Natixis North America, “so this in my view is slightly bearish for US rates.”
The jobs data provided the first ‘clean’ read on the broad economy’s employment trend after a six-week US government shutdown from Oct. 1 to Nov. 12 delayed the production of labor reports for September, October and November.
The case for additional Fed interest-rate cuts is seen resting on how the labor market performs in the coming months. The central bank lowered its target band for short-term lending rates at its past three meetings in response to weakening labor-market conditions, however some officials remain worried about inflation remaining above their target and that is seen limiting the pace of further easing.
