Bond Traders’ Risk-Filled Day Kicks Off With Key US Jobs Report

(Bloomberg) — Bond traders are on guard for an especially volatile Friday as a pivotal US jobs report and a potential Supreme Court ruling on President Donald Trump’s tariffs threaten to jolt the Treasuries market out of its doldrums.

First up is the 8:30 a.m. Washington time release of December employment figures, a highly anticipated report seen as finally giving a reliable reading on the economy after weeks of data affected by the government shutdown. The figures will either cement expectations that the Federal Reserve will hold steady this month, or boost the view that a fourth straight interest-rate cut is possible.

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As the dust settles from that, traders will be on high alert for the possible release as soon as mid-morning Friday of a ruling on the legality of the president’s levies. An opinion against the tariffs, which have generated hundreds of billions of dollars in revenue and eased pressure on the US budget deficit, may weigh on Treasuries.

“Over the past couple of months, the lack of economic data has allowed for more complacency in markets,” said Zach Griffiths, head of investment-grade and macro strategy at research firm CreditSights. “We are likely to see volatility pick up.”

The tariff decision is “a big wild card,” he said. But the stage is set Friday for a one-two punch that could roil the $30 trillion US government-debt market. The benchmark 10-year yield, which has been fluctuating in a narrow range of 4.1% to 4.2%, was two basis points higher at 4.19% at 4:45 a.m. in New York.

Fed Focus

Treasuries gained more than 6% last year, their best performance since 2020, as a cooling labor market led the Fed to lower rates in three straight quarter-point steps.

Investors anticipate the employment data will show a stabilizing labor market, giving the central bank room to pause at its Jan. 27-28 meeting. Economists surveyed by Bloomberg forecast that December payrolls rose by 70,000, after a gain of 64,000 in November. The unemployment rate is projected to fall to 4.5% from 4.6%.

Investors now see about a 10% chance of a Fed cut this month. They’re pricing in the next reduction coming in June, the month after Fed Chair Jerome Powell’s tenure ends, with another easing to follow in the fourth quarter.

A “really weak” payrolls number, such as one that shows roughly flat job growth, “brings in the Fed,” potentially lifting the probability of a January easing to 50%, said Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities.

While yields will come down across tenors on such a result, shorter maturities will outperform, steepening the yield curve, he said.

Tariff Considerations

As for how a tariff ruling may impact bonds, traders have in mind Treasuries’ slump on Nov. 5. That was when arguments suggested the court was skeptical that Trump had authority to impose the levies under a 1977 law giving the president special powers during emergency situations.

Longer maturities came under the most pressure that day as traders speculated that a ruling against Trump would widen the deficit and increase government borrowing. The administration, however, is expected to pursue alternative legal avenues to reinstate most of the levies, suggesting any immediate market reaction may be short-lived.

On the platform Kalshi, bettors see around a 28% probability of a ruling in favor of Trump’s tariffs. At the same time, they assign only about a 40% chance that the court would order the government to immediately return tariff revenue.

Removing tariffs would likely “rekindle fiscal concerns, presenting a risk of higher long-term yields and steeper curves,” JPMorgan Chase & Co. strategists including Jay Barry wrote in a note this week. Still, any impact “should be fairly limited,” given the administration’s ability to pursue other routes to restore most levies, they said.

(Adds US 10-year yield level in fifth paragraph)

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