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Bond Report: 10-year Treasury yields fall forward of January jobs report

Long-dated government bond yields fell early Friday as investors waited for a jobs report that will show how hard the Omicron variant of the coronavirus has hit the job market over the past month.

What are returns doing?

The yield on the 10-year government bond
TMUBMUSD10J,
1.821%
was 1.819%, down from 1.825% at 3:00 p.m. Easter on Thursday. Yields and debt prices move in opposite directions.

The yield on 2-year Treasury bills
TMUBMUSD02Y,
1.211%
rose to 1.211% from 1.19% on Thursday afternoon.

The 30-year government bond
TMUBMUSD30J,
2.131%
was 2.13%, down from 2.144% late Thursday.

What moves the market?

A busy week of jobs data culminates with the release of the January jobs report at 8:30am EST. Economists polled by the Wall Street Journal are forecasting a 150,000 increase in nonfarm payrolls, the smallest increase in 13 months. However, the report is surrounded by a great deal of uncertainty as some economists warn of the possibility of a sharp drop in payrolls.

That's because the spread of the Omicron variant was peaking at the time the government was compiling working data last month. Hourly workers without paid sick leave who were absent from work would not be counted as employed, even though they still have work. Earlier this week, Automatic Data Processing's estimate of private sector jobs showed an unexpected decline. While the ADP data is not seen as a reliable guide to the official data, economists said the factors that led to its negative print could also influence Friday's report.

Economic forecast: Why the US may have lost jobs for the first time in more than a year

The unemployment rate, on the other hand, which is calculated differently, should be little affected by the Omicron variant, with economists expecting it to remain unchanged at 3.9%. And St. Louis Federal Reserve Bank President James Bullard has warned that a weak January payroll report would be misleading and hide a strong economy and jobs.

The takeaway, analysts say, is that any decline in payrolls is likely to be reversed in February. That means a weak January report is unlikely to derail the Federal Reserve from its expected course, as policymakers are expected to start raising interest rates in March.

What do analysts say?

Investors "have to be careful not to be fooled by the jobs report," said Scott Ruesterholz, portfolio manager at Insight Investments, in a statement. "Policymakers are proactively saying they will not be with multiple Fed members who are ignoring the importance of Friday's report."

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