US Treasuries Slip as Rally Loses Steam on Steady Labor Data
•February 17, 2026
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Companies Mentioned
Why It Matters
The move signals that bond investors remain cautious, tying future borrowing costs to both labor market resilience and the Fed’s data‑driven rate‑cut timeline, which could reshape credit conditions across the economy.
Key Takeaways
- •10‑year yield rose to 4.06%, ending rally.
- •Two‑year yield climbed three basis points, hitting 3.43%.
- •Market pricing two 25‑bp Fed cuts by year‑end.
- •Steady payrolls reinforce view of resilient labor market.
- •Fed Governor Barr urges patience until inflation hits 2% target.
Pulse Analysis
The latest Treasury slip underscores how tightly bond markets are tethered to real‑time labor metrics. After a 0.9% rally last week, the 10‑year yield nudged above 4%, a level unseen since late 2023, as private payrolls showed no sign of weakening. This modest uptick reflects investors’ recalibration of risk, favoring income‑generating assets while awaiting clearer signs of economic slowdown. The shift also highlights the delicate balance between equity volatility and defensive positioning that drives duration demand.
Federal Reserve policy remains the primary catalyst for Treasury direction. Governor Michael Barr’s recent remarks—emphasizing the need for concrete inflation progress before adjusting rates—reinforce market expectations of two modest cuts by year‑end. Yet the Fed’s cautious stance, coupled with a 2.4% year‑over‑year CPI rise in January, suggests policymakers will prioritize price stability over pre‑emptive easing. This environment keeps the yield curve relatively flat, with short‑term rates edging higher as investors price in a slower path to the 2% inflation goal.
For investors, the current landscape presents both opportunities and risks. A break above the 4% threshold on the 10‑year could trigger a sharp rally, offering attractive entry points for income‑focused portfolios. Conversely, any unexpected inflationary pressure or stronger‑than‑expected labor data could unwind the rally, prompting a rapid correction. Market participants will closely monitor upcoming Fed minutes and upcoming employment reports, using them as barometers for future rate moves and Treasury performance.
US Treasuries slip as rally loses steam on steady labor data
(Bloomberg) — Treasuries edged lower, suggesting a recent rally is running out of steam as investors weigh whether the economy is weakening enough to justify deeper Federal Reserve rate cuts.
Benchmark 10‑year yields closed one basis point higher at 4.06%, while the policy‑sensitive two‑year yield climbed three basis points to 3.43%.
On Tuesday, a reading of private payrolls did little to change the view that the US labor market remains stable. Traders are fully pricing in two quarter‑point rate reductions by the end of the year.
Adding to the caution, Fed Governor Michael Barr said rates should remain steady until officials see more evidence that inflation is heading toward the central bank’s 2% target. Consumer prices in January rose 2.4% on an annual basis, according to data released last week.
“The Fed is going to look at the set of data and say that they don’t have enough conviction to really do anything,” said Kelsey Berro, a fixed‑income portfolio manager at JPMorgan Asset Management. “We don’t think a lot has changed.”
The moves come after Treasuries rallied 0.9% last week, the best performance since April, as the S&P 500 tumbled. Data showed an unexpected decline in the unemployment rate and a consumer‑price‑index reading that came in below forecasts.
That pushed the 10‑year yield — a benchmark for consumer borrowing rates — toward 4%, a level it hasn’t hit since late last year.
In a range‑bound environment, investors hold bonds to collect steady income and “position as a hedge against a risk‑off drawdown because it is working in those days,” said Berro. “And as long as inflation expectations are remaining well anchored and the reason for the risk‑off isn’t a function of higher inflation, then the Treasury market does serve as a diversifier.”
What Bloomberg Strategists say…
“Treasuries are pressing toward a pivotal test, with the rally increasingly contingent on a clear deterioration in the data rather than incremental softness. While equity‑market volatility and defensive flows continue to underpin duration demand, a long bias looks increasingly consensus, leaving Treasuries at risk.”
— Brendan Fagan, FX Strategist, Markets Live. (For the full analysis, click here.)
Last week’s softer US inflation data and quant‑funds deleveraging in equities are driving the bid for bonds, said Prashant Newnaha, senior strategist at TD Securities in Singapore.
“Technically 4% on US 10‑year is setting up as a make‑or‑break level. Expect a sharp rally if this level is broken,” he said.
Traders are on the lookout this week for minutes from the Fed’s January meeting to glean more insight into the timing for the next interest‑rate cut. Fed officials kept interest rates on hold at their meeting last month following three cuts in the closing months of 2025.
“We think the labor market is still generally on a softer trend but the recent data has been quite encouraging,” Kamakshya Trivedi, chief FX strategist at Goldman Sachs Group Inc., told Bloomberg TV.
While Trivedi expects the US inflation picture to remain benign, others remain concerned about price pressures. Benoit Anne, managing director at MFS Investment Management, said the US economy looks robust, yet this raises the risk of overheating.
“Should the upcoming data releases indicate this is happening, the current rate pricing could well unwind,” Anne said, triggering a potential “significant correction” in markets.
(Updates prices and adds Fed governor comments starting in second paragraph.)
Ye Xie, Masaki Kondo and Matthew Burgess
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