Employers added 177,000 jobs in April

Treasury to auction 3-, 10-, 30-year debt next week

Traders pus bets on next rate cut to July

Japan says could use Treasury holdings in trade negotiations

(Updated in New York afternoon time)

May 2 (Reuters) – U.S. Treasury yields rose to a one-week high on Friday after data showed that employers added more jobs than economists had expected in April, pushing bets on the next Federal Reserve rate cut back one meeting to July.

Nonfarm payrolls increased by 177,000 jobs last month after rising by a downwardly revised 185,000 in March. Economists polled by Reuters had forecast an increase of 130,000 jobs. The unemployment rate was unchanged at 4.2%.

“It’s a little bit of a sigh of relief from the market’s perspective that although there’s some uncertainty around what the economic outlook is, at least for now the jobs data is holding up,” said Jim Barnes, director of fixed income at Bryn Mawr Trust.

“It takes a little of the urgency off the table for the Fed to have to move,” Barnes said.

Investors are concerned that new tariffs enacted by U.S. President Donald Trump’s administration will slow growth and lead to a renewed bout of inflation.

Fed officials including Chair Jerome Powell have also expressed concerns about renewed price pressures and a still resilient labor market will give them more room to hold rates higher for longer.

Traders are now pricing in a 34% probability of a June cut, down from around 58% from before the jobs report, according to the CME Group’s FedWatch Tool. A rate cut at the Fed’s May 6-7 meeting has only 2% odds, with July now seen as the most likely month for the next rate reduction with a 79% probability.

Barclays and Goldman Sachs on Friday both pushed out their expectations for the next cut to July,

Friday’s data comes after a better than expected, though still weak manufacturing report for April on Thursday that sent yields higher.

Longer-dated debt is also under pressure ahead of auctions of the bonds next week. The Treasury will sell $58 billion in three-year notes on Monday, $42 billion in 10-year notes on Tuesday and $25 billion in 30-year bonds on Thursday.

Benchmark 10-year Treasury yields were last at 4.326%, up from 4.231% on Thursday and were on track for their largest daily increase since April 11.

Interest rate sensitive two-year yields rose to 3.841%, up from 3.701%. They are on pace for the largest daily increase since April 9.

The yield curve between two- and 10-year notes flattened by around 3 basis points to 49 basis points.

Traders are waiting on the United States to make deals with trading partners for signs that the tariffs won’t be as bad as feared.

Japan could use its $1 trillion-plus holdings of U.S. Treasuries as a card in trade talks with Washington, its finance minister said on Friday, raising explicitly for the first time its leverage as a massive creditor to the United States.

While Finance Minister Katsunobu Kato did not threaten to sell holdings, his remarks touch on a critical concern global investors have about what Japan and China, the two largest owners of U.S. government debt, might do in seeking tariff concessions from the Trump administration.

That’s “something we’ll cautiously regard as a bluff for now considering how much a fire sale would damage the Japanese economy from a stronger yen,” Will Compernolle, macro strategist at FHN Financial said in a report.

Selling by foreign holders of Treasuries was cited as a possible factor behind a sharp selloff in Treasuries in early April though so far there has been no evidence showing either a buyers’ strike or large foreign liquidations.

Beijing, meanwhile, is “evaluating” an offer from Washington to hold talks over U.S. President Donald Trump’s 145% tariffs, China’s Commerce Ministry said on Friday, although it warned the United States not to engage in “extortion and coercion.”

Beijing is considering ways to address the Trump administration’s concerns about China’s role in the fentanyl trade, the Wall Street Journal reported on Friday. (Reporting By Karen Brettell; Editing by Emelia Sithole-Matarise and Nick Zieminski)