US Treasury yields rose across the curve on Wednesday. The 10-year note climbed nearly 1.5 basis points to 4.155%, after a stronger US jobs report lowered expectations for Fed rate cuts. The 10-year yield bounced back from around 4.125% after the BLS reported that January nonfarm payrolls increased by 130K, above the 70K forecast. The unemployment rate fell to 4.3% from 4.4%, below the Fed’s 4.5% full-year estimate.

Jobs Data Reshapes Rate Cut Outlook

Markets no longer expected a March rate cut. They priced in 27 basis points of easing through July 2026. For 2026, markets priced two cuts, with the first expected in July. Kansas City Fed President Jeffrey Schmid said rate cuts could allow inflation to stay higher for longer. He said policy should stay restrictive if inflation is near 3%. The US Dollar Index fell 0.14% to 96.75. Five-year breakeven inflation eased to 2.47% from 2.5%, and the 10-year measure slipped to 2.32% from 2.35%. Initial Jobless Claims and Fed speeches are due on Thursday. On Friday, January CPI is expected to cool. Headline and core inflation are forecast to fall year on year, from 2.7% and 2.6% to 2.5%.

Trading Setup Around CPI And Volatility

After the strong January jobs report, the Fed has a clear reason to delay rate cuts. The market now prices the first cut for July 2026. That is a big change from a few weeks ago, when a spring cut still looked possible. This “higher for longer” backdrop suggests ongoing stress in short-term rate markets. Attention now turns to the Consumer Price Index (CPI) report, which could drive sharp moves. Volatility trades may fit this setup. For example, options strategies like straddles on rate-sensitive ETFs such as TLT can benefit from a large move in either direction. With a strong labor market but falling inflation expectations, the market looks uncertain. This CPI print could force a clearer trend. Recent history also argues for caution. Inflation stayed sticky through much of 2025, even after earlier aggressive rate hikes. The Fed kept rates steady for most of last year, disappointing traders who expected an early pivot. That experience shows the risk of betting too early on rate cuts, since strong data can quickly change market pricing. Newer data supports a more hawkish Fed view. The CME FedWatch Tool now shows the probability of a July rate cut falling from above 70% last month to about 52% after the jobs report. In addition, last week’s ISM Services PMI came in strong at 53.8, showing continued expansion in the largest part of the economy. This backdrop may favor a flatter yield curve. Short-term rates may stay firm, while longer-term yields could drift lower on disinflation hopes. Traders could use SOFR futures to position for a narrower 2-year/10-year spread in the weeks ahead. With the VIX near 13.5, VIX calls are relatively cheap and can hedge against an equity decline if inflation prints hotter than expected. Create your live VT Markets account and start trading now.

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