Treasuries slid as investors anticipated Friday's December employment data and possible Supreme Court strike-down of tariffs that have improved the US fiscal position.

Yields across maturities were higher by less than three basis points after rebounding from session lows. US economic data showing improved productivity, weekly initial jobless claims near recent lows and higher oil prices for the first day in three supported the move.

Treasuries have "a strong underlying bid" that may limit any selloff on strong employment data, while a tariffs ruling "could send rates in either direction," Andrew Brenner, vice chairman at Natalliance Securities wrote to customers. 

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December employment data have the potential to alter expectations for Federal Reserve interest-rate cuts this year, following three cuts at the end of last year in response to signs of job-market weakness. With several Fed officials inclined to pause the cuts because of inflation risk, traders of short-term interest rate products are pricing in minimal odds of a move on Jan. 28, the next decision date. Two cuts are priced in by year-end.

In Treasury options trading Thursday, a call option on 10-year note futures expiring Friday was bought for $7.5 million, providing protection for the holder from a market rally.

Beyond Friday, the outlook for rate cuts is subject to the White House announcing a nominee to succeed Chair Jerome Powell, whose term expires in May and whom US President Trump has said won't be reappointed because rates are too high. The administration has teased the announcement of a nominee for months, and the New York Times reported that Trump in a Wednesday interview said he'd made up his mind but hadn't told anyone the decision.

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As for the possible ruling on tariffs the US administration instituted this year, the prospect of an end to the accumulation of revenue that helped narrow the US budget deficit in fiscal 2025 may draw a knee-jerk negative reaction from the Treasury market. That was the case when oral arguments took place in early November, despite the broad array of alternative legal options at the White House's disposal.

Supply considerations also continue to influence yield levels. As expected, this week is shaping up as a historically large one for sales of new investment-grade corporate bonds, which compete with Treasuries for investor cash. The $88.4 billion sold over the first three days puts the week among the five biggest on record.

Meanwhile, the first Treasury coupon auctions of the year are set for Monday, including three- and 10-year notes. All of next week's auctions fall earlier in the week than normal in order to conclude by their Jan. 15 settlement date.