Inflation has been stubbornly low, and the Fed has acknowledged that it expects inflation to rise but there are still few signs of it. "It's the only thing keeping the Fed from moving on the rate hike. Even with the lackluster nonfarm payrolls report, all the other signs would have suggested the Fed would have initiated liftoff by now had it not been for that decline in inflation. That's what makes Friday's report all the more relevant," said Ian Lyngen, senior Treasury strategist at CRT Capital.
The Treasury market has been super sensitive to Fed comments, and yields moved higher on comments from Vice Chairman Stanley Fischer, before moving lower on what were taken as more dovish comments from Atlanta Fed President Dennis Lockhart. The 10-year was at 1.88 percent in late trading after Lockhart said economic weakness means the Fed can take its time in raising short-term rates.