TREASURIES-US yields drift higher as markets stabilize; investors look to payrolls

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US jobless claims rise in latest week

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US productivity slows in Q4

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US rate futures price in 46 bps of easing in 2025

By Gertrude Chavez-Dreyfuss

NEW YORK, Feb 6 (Reuters) - U.S. Treasury yields were mostly higher on Thursday except for the longer end of the curve, recovering from multi-week declines in the previous session, as the bond market stabilized a bit, having temporarily averted a disastrous trade war with Canada and Mexico.

The tariff threat, however, remains a lingering concern, with China's import duties on U.S. goods set to take effect on February 10.

"The markets are stabilizing," said Robert Tipp, chief investment strategist and head of global bonds at PGIM Fixed Income in New York.

"As was the case with the 2016 Trump victory, there is a lot of concern about issuance and the huge tariff overtone and people believe it is going to be inflationary. The market is grappling with these fears ... and instead of having a Fed (Federal Reserve) at your back, you have a Fed that is really in watch-and-wait mode."

Market participants are also looking ahead to Friday's nonfarm payrolls report for January, with a Reuters poll forecasting 170,000 new jobs created, down from 256,000 in December.

In late morning trading, U.S. benchmark 10-year yield edged higher to 4.430%, up 1.2 basis points (bps).

U.S. 30-year yield also inched up at 4.644%.

On the front end of the curve, the U.S. two-year yield to 2.7 bps to 4.212%.

Treasury yields showed little reaction to Thursday's economic data showing a rise in U.S. weekly jobless claims and a lower-than-expected productivity in the fourth quarter. Those reports though should keep the Fed on track to still cut interest rates once or twice this year.

A report from the Labor Department said initial claims for state unemployment benefits rose 11,000 to a seasonally adjusted 219,000 for the week ended February 1. Economists polled by Reuters had forecast 213,000 claims for the latest week.

Another piece of data showed that U.S. worker productivity growth slowed more than expected in the fourth quarter, driving up labor costs. Nonfarm productivity, which measures hourly output per worker, increased at a 1.2% annualized rate last quarter after growing at an upwardly revised 2.3% pace in the July-September quarter, data showed.

Post-data, U.S. rate futures, have priced in about 46 bps of easing this year, or nearly two rate cuts of 25 bps each. The percentage has been in the 45% range for most of the week, Monday, according to LSEG calculations. The Fed is expected to be on hold for several policy meetings, resuming cutting rates again either in June or July. (Reporting by Gertrude Chavez-Dreyfuss Editing by Nick Zieminski)