(Bloomberg) -- Treasuries surged as weak US labor-market data and a deepening slump in stocks bolstered wagers that the Federal Reserve will resume cutting interest rates this year.
Yields tumbled by roughly six basis points or more across maturities on Thursday, in one of the market's biggest rallies in weeks. Shorter tenors that are more sensitive to Fed policy expectations led the move, driving the two-year note's yield to the lowest level in almost a month.
The move came as data showed a surge in job-cut announcements by US companies, a jump in claims for unemployment benefits and a slide in job openings. It gathered pace as US stock benchmarks and cryptocurrencies extended this week's selloff, and on continued volatility in precious metals. The dollar benefited from the tumult, heading for a weekly gain.
"The jobs data was the catalyst, but we've been living in markets that have been fully priced for some time now, and we're seeing cracks starting to form," said Sean Simko, head of fixed-income investment management at SEI Investments Corp. "That's creating a de-risking environment that we're seeing across many sectors."
US two-year yields fell eight basis points to 3.47%, touching the lowest since Jan. 8. Ten-year yields declined less, increasing the gap between them to almost 74 basis points, the widest level since April and approaching the steepest since 2022.
In currencies, the Bloomberg Dollar Spot Index, with a 0.5% gain since Friday's close, is on track for its first weekly advance in four.
"The dollar is not gaining because the US is doing great. Rather, it feels like a pure risk off move given the drop in equities, crypto, silver, and other risk assets," said Win Thin, chief economist at Bank of Nassau 1982.
Labor Department data showed a bigger-than-forecast increase in initial jobless claims in the final week of January, as well as a slump in US job openings in December. Separately, private-sector figures from outplacement firm Challenger, Gray & Christmas Inc. showed job cuts were the steepest for any January since the depths of the Great Recession in 2009.
The data "has shifted the tone in the market and dimmed expectations for next week's official payrolls print," said Ian Lyngen, head of rates strategy at BMO Capital Markets Corp. A brief US government shutdown delayed the release of the January employment report to Feb. 11 from this week, and January consumer prices data to Feb. 13.
Fed Bets
Short-term interest rate contracts that predict Fed rate moves priced in higher odds that the central bank — which paused cutting rates this month citing signs of labor-market stability — will act again by July. By that point, it's anticipated that Kevin Warsh, US President Trump's choice to succeed Jerome Powell as Fed chair, will have taken office.
"For now the Fed is perceived to be on hold," said Chris Ahrens, a strategist at Stifel Nicolaus & Co. "If we start to see some softening in the labor-market data, the market sill start to at least try to build in the prospect of another rate cut in the last few months of the Powell regime."
The Treasury market "has been relatively quiet against a backdrop of pretty aggressive rotation in the equity market," and that appears to be changing, Ahrens said.
The advance also drew support from steeper gains for UK government bonds after the Bank of England's split decision to hold rates steady, with the minority favoring a cut.
--With assistance from Edward Bolingbroke and Michael MacKenzie.
More stories like this are available on bloomberg.com
