Steady bond market moves on jitters over the job market, U.S.-Iran nuclear talks

By Vivien Lou Chen

'Jobs data have been a key argument for rate cuts,' strategist notes, and Thursday's reports on a weakening labor market saw the odds rise for a March rate cut

Investors are fretting over Thursday's labor-market data showing higher-than-expected jobless claims, as well as a surge in job cuts for January.

The bond market, steady over much of this week, was reflecting investors' jitters on Thursday in the wake of shaky labor-market data and a selloff in tech stocks.

U.S. government debt was getting a bid on apparent safe-haven demand driven by fresh signs of a weakening labor market. A report on layoffs from Challenger, Gray & Christmas showed job cuts jumped to 108,435 during January. First-time claims for unemployment benefits rose by more than expected, to 231,000 in the final week of last month.

Read: Job openings sink to a postpandemic low. The economy is barely adding any new jobs.

Adding to labor-market worries were upcoming nuclear talks between Iran and the U.S. scheduled to be held on Friday. The negotiations were confirmed by Iranian Foreign Minister Seyed Abbas Araghchi.

Demand for safety sent yields across much of the Treasury curve down by the most in almost four months. On Thursday, the policy-sensitive 2-year yield BX:TMUBMUSD02Y fell 7.7 basis points to 3.48%, the lowest 3 p.m. Eastern time level since Jan. 7. The rate on the 10-year note BX:TMUBMUSD10Y dropped 6.8 basis points to 4.21%, while the 30-year yield BX:TMUBMUSD30Y declined 5.3 basis points to 4.86%. Wednesday's session produced the biggest one-day drops in all three yields since Oct. 16, according to Dow Jones Market Data. In the bond world, prices move in the opposite direction of yields, meaning a rally in Treasurys sends market-based rates lower.

Thursday's moves "are really attributable to the economic data, with layoffs figures and jobless claims above expectations," said Lawrence Gillum, the Charlotte, N.C.-based chief fixed-income strategist for broker-dealer LPL Financial. Those reports were "disappointing" and "jobs data have been a key argument for rate cuts" - which prompted traders to consider a slightly higher probability of interest-rate reductions from the Federal Reserve this year.Fed-funds futures traders priced in a 22.7% likelihood of a quarter-point rate reduction by the Fed in March, up from 9.4% just a day ago, according to the CME FedWatch Tool. The likelihood of a total of three cuts by year-end - which would be more than Fed officials have penciled in - crept up to 26.7% versus 21.5% on Wednesday.Thursday's labor-market data added to the list of concerns already facing U.S. stock investors, who have been questioning the overall AI trade and whether artificial intelligence will have a detrimental impact on the software sector. All three major U.S. stock indexes DJIA SPX COMP closed sharply lower.

"Economic data outside of the jobs market has been pretty resilient," Gillum said in a phone interview on Thursday, noting that Monday's manufacturing-based survey from the Institute for Supply Management contained a surprisingly good reading. "It's been kind of a sideways-driven market that is continuing to oscillate between good economic data and bad jobs data."

Geopolitical risks are also having an impact, but may not be as big an issue as the U.S. labor market, he added. The bond market is "still mainly trading on interest-rate expectations, and those hadn't changed until today."

-Vivien Lou Chen

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02-05-26 1619ET