NFP To Anchor Fed Pause, 10-year Yield Eyes Higher Level

US non-farm payroll report is taking center stage today as markets look for confirmation of Fed’s anticipated decision to pause rate cuts this month. Recent comments from multiple Fed officials have highlighted a cautious approach to further monetary easing, with a consensus forming that the central bank is nearing a pause in its rate-cutting cycle.

Fed fund futures currently price 93% likelihood of a hold at the meeting, and an in-line or stronger-than-expected jobs report could push this probability closer to certainty.

The broader debate now shifts to two key questions: how long the Fed’s pause might last and how much more easing, if any, will occur this year. Current market pricing indicates a 60% chance of another hold in March, followed by a 53% probability of a rate cut in May. For the rest of 2025, markets see over an 85% chance that rates will remain steady at 4.00%-4.25%.

Following today’s data, the immediate focus is whether the odds of a March hold increase, reflecting an extended pause.

Regarding expectations on the data, for December, headline job growth is forecasted to slow to 150k, with the unemployment rate expected to hold steady at 4.2%. Average hourly earnings are anticipated to rise by 0.3% month-over-month.

While some signals, such as the ISM Manufacturing PMI Employment component falling to 45.3 and ADP private employment growth decelerating to 122k, point to a cooling labor market, others remain robust. ISM Services PMI Employment component held steady at 51.4, and the 4-week moving average of initial jobless claims fell to a historically strong 213k, suggesting resilience and leaving room for an upside surprise in today’s report.

In terms of market reactions, a major focus is on treasury yields. Technically, 10-year yield breached 61.8% projection of 3.603 to 4.505 from 4.126 at 4.683 this week, as rally from 3.603 resumed.

Strong NFP number could push TNX higher, and sustained trading above 4.683 should pave the way towards 100% projection at 5.028, which is close to 4.997 high, and 5% psychological level. Any upside acceleration could realize this target at around the end of Q1.

In any case, outlook in TNX will stay bullish as long as 4.517 support holds, in case of retreat.