U.S. Treasury yields edged lower on Friday as investors awaited January employment data that could influence Federal Reserve policy. The benchmark 10-year Treasury yield slipped to 4.62% from 4.64% Thursday, while the 2-year yield fell to 4.41%. Market participants are positioning for a report expected to show modest job gains of around 150,000 positions.

Fixed-income traders are particularly sensitive to labor market data as wage growth and employment levels directly impact inflation expectations and monetary policy decisions. The Federal Reserve has maintained a cautious stance on interest rates, with officials emphasizing the need for more evidence that inflation is sustainably moving toward their 2% target. Strong employment figures could complicate the Fed's path toward potential rate cuts later this year.

Bond market volatility has increased recently as investors weigh conflicting signals about the economic outlook. While inflation has moderated from its 2022 peaks, persistent services inflation and a resilient labor market have kept the Fed on the sidelines. The upcoming jobs report will be closely scrutinized for signs of cooling in the labor market, which could provide the central bank more flexibility in its monetary policy approach.