Treasury Yields Drop as Fed Rate-Cut Bets Rise to 30% Pre-Payroll

U.S. Treasury yields fell sharply in the lead-up to the Jan. 10 government report on labor-market data, with investors pricing in a stronger likelihood of Federal Reserve rate cuts this year. December retail sales were flat, with eight of 13 categories posting declines, heightening concerns about labor weakness and inflation. Yields across maturities declined by at least four basis points, with the 10-year note’s yield reaching 4.13%—its lowest since Jan. 15—on Tuesday. Money markets now price about 30% chance of three quarter-point cuts this year, up from earlier readings. The 10-year note sold off as much as seven basis points on the day, the steepest one-day decline since April. The nonfarm payrolls report is delayed to Wednesday due to a government shutdown and is seen as critical to assessing whether recession fears or further easing will be warranted. Meanwhile, inflation remains sticky, with the consumer price index expected to have slowed to 2.5% from 2.7% in December.