• “The jobs numbers are critical as the new administration looks to ‘reprivatize’ and downsize public sector jobs, which is
  where growth has been,” said Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities.

US government bond yields shifted back toward their lowest levels of the year amid mounting investor conviction that a trade-induced growth slowdown will lead the Federal Reserve to cut interest rates multiple times this year. Aided by a drop in the price of crude oil to a six-month low, the Treasury market rallied after a gauge of hiring by US companies fell short of nearly all economist estimates for February. Some of the gains were pared after a subsequent report on services was stronger than anticipated and a historic selloff in German government debt. A broader gauge of US February job creation is ahead Friday.

Yields on two-year notes — more sensitive than longer maturities to Fed interest-rate changes — led the move to lower
levels, falling nearly 10 basis points to 3.89% before rebounding to around 3.94%. The 10-year note’s was little changed around 4.24% after falling to 4.18%. Across maturities, Treasury yields touched 2025 lows on Tuesday. “It’s a bullish environment for Treasuries,” said Padhraic Garvey, regional head of research at ING Groep. “I suspect the 10-year can’t go below 4% just yet,” though Friday’s employment data “will be key” as weakness could lower the expected floor for the Fed’s policy rate. The US Treasury market gained 2.7% this year through Tuesday as measured by a Bloomberg index, with a 2.5% advance since mid-February amid accumulating indications of slowing
economic activity.

Investors in recent weeks have pivoted from viewing US President Donald Trump’s tariffs agenda as potentially inflationary to focusing on negative economic consequences. The administration’s federal government job and spending cuts are also a factor.

The February jobs report is expected to show that US nonfarm payrolls increased by 160,000 in February, according to
the median of a Bloomberg survey of economists. Anna Wong of Bloomberg Economics said payrolls may even have contracted
because of the sudden retrenchment of state and local government hiring after the administration froze federal financial
assistance programs.

“The jobs numbers are critical as the new administration looks to ‘reprivatize’ and downsize public sector jobs, which is
where growth has been,” said Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities. Swap traders are pricing in slightly less than even odds that the Fed will resume cutting interest rates in May. For all of 2025, the contracts imply nearly three-quarters of a percentage point of easing. The sticking point for central-bank policymakers is inflation that continues to exceed their 2% long-term target. The Fed paused cutting rates in January, following three cuts totaling a percentage point last year, after progress toward
lower inflation stalled. In Wednesday’s ISM services report, a gauge of prices paid by businesses component of the ISM services unexpectedly increased, along with gauges of new orders and employment. Commerce Secretary Howard Lutnick, speaking on Bloomberg
Television Wednesday, said he’d “bet on the economic growth that is coming from Donald Trump.” Lutnick also said Trump may offer a pathway to tariff relief for Mexico and Canada, with details to be announced this afternoon. “You are going to see the
greatest equity market and bond markets under President Trump,” he said.

Still, a survey of JPMorgan Treasury clients published Tuesday showed wagers on further gains — so-called net bullish
positions — were at their highest level in 15 years. And demand for options to hedge against further price increases is on the
rise.

German government bonds yields surged Wednesday, with the 10-year rising the most in a day since 1990, as investors braced for an increase in borrowing to fund defense and infrastructure investment. That came after chancellor-in-waiting Friedrich Merz
outlined a sweeping fiscal overhaul that could boost the European economy.

“Treasury yields are moving seemingly completely independent of the sovereign moves across the pond,” said
Zachary Griffiths, head of investment-grade and macroeconomic strategy at CreditSights. “And there was a fairly muted response to the ISM services data — which seemed to indicate the labor market remains solid while prices are moving in the wrong
direction.”