US Treasuries Edge Higher Ahead of Crucial Economic Reports

(Bloomberg) — Treasuries edged higher to open a consequential week, with traders awaiting readings on the labor market and inflation for signals on the strength of the US economy.

The gains pushed yields about one basis point lower by the close of a choppy session, with the rate on 10-year notes falling to 4.2%. Focus now shifts to a series of economic reports, highlighted by the release of January employment data on Wednesday.

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Yields fell on Monday after National Economic Council Director Kevin Hassett said lower US jobs numbers can be expected in the months ahead as population growth slows.

The comments “definitely moved the short end,” said Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities. “The fact that he came out today with that statement ahead of the jobs report is telling,” and will cause investors to anticipate a weaker number.

The report is expected to show the jobless rate held steady at 4.4% for the month, based on a Bloomberg survey of economists. January’s consumer price index is set to be released two days later — leaving investors to digest two major economic reports in the same week. The release schedule was changed due to the brief government shutdown.

Those releases could shape expectations for the Federal Reserve’s next move on interest rates. Traders are broadly expecting policymakers to leave rates on hold when they meet next month as they did in January when they voted to keep them at 3.5% to 3.75%.

Earlier in the session Monday, yields on long-dated bonds jumped on concerns that Chinese banks are reining in their holdings of US government bonds. The dollar also fell after Chinese regulators were said to have advised the nation’s financial institutions to curb their holdings of Treasuries due to market volatility.

While the request was framed around diversifying risk, it may reinforce a recent global trend that has seen the likes of India and Brazil lower their exposure to the world’s biggest bond market amid growing doubts about the appeal of US assets. Geopolitical risks such as President Donald Trump’s threats over Greenland have only deepened the unease and spurred the hunt for alternative assets such as gold.

“It’s the latest evidence of a pattern forming — a sign that the expectation of long-term structural outflows from the dollar is not just a mirage,” said Gareth Berry, strategist at Macquarie Group Ltd.

Adding to pressures on US assets was the spillover from a politically driven selloff in UK government bonds and a jumbo dollar- and pound-denominated bond sale by Google parent Alphabet Inc.

The initial selling on the report on China’s holdings was limited, said Kathleen Brooks, research director at XTB.

“If China was to ditch their Treasuries in a large-scale selling program, this would cause US and global yields to spike and would cause major disruption to the global economy,” she said.

“The bond market is taking the view that China won’t do this, and if they do reduce the size of their Treasury holdings they will do this in a slow and gradual way. Hence why yields are mostly stable so far.”

China-based investors’ holdings of Treasuries have halved to $682.6 billion, the lowest level since 2008, from a peak of $1.32 trillion reached in late 2013, according to official US data. Still, Belgium — whose holdings are usually taken to include Chinese custodial accounts — has seen its Treasury ownership quadruple since the end of 2017 to $481 billion.

Taken together with Chinese holdings of US agency bonds and equities, the Asian nation’s outstanding investment in American securities has remained relatively stable since late 2023. China is the third-largest foreign holder of Treasuries, after Japan and the UK.

–With assistance from Tom Fevrier, Elizabeth Stanton and Ruth Carson.

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