Stock futures rose, the dollar briefly fell, and Treasury yields declined, led by the 2-year. The 2-year Treasury is most sensitive to Fed rate hikes, and its yield fell to 1.16 percent. Ahead of the report, it had been as reached 1.24 percent.

"The good news was payrolls were muscular, but the bad news was average hourly earnings only grew 0.1 percent," said Ward McCarthy, chief financial economist at Jefferies. Wage growth was expected to come in at 0.3 percent. Economists had only expected 175,000 payrolls, and instead got the best job growth since September.

Employment grew by a hefty 227,000 jobs in January, but wage gains were tepid at best, and bond traders see little reason for the Federal Reserve to pick up the pace of interest rate hikes.

From the Fed's standpoint, this reduces the urgency to push the button.

Market expectations for an interest rate hike in March fell to about 12 percent from near 20 percent, according to John Briggs, head of strategy at NatWest Markets. The bond market expected a solid report overall and had been set up for a bearish reaction, meaning prices would have sold off and yields would have risen on good data.

"From the Fed's standpoint, this reduces the urgency to push the button," said McCarthy.

The market was also disappointed earlier this week that the Fed did not sound more aggressive about rate hikes when it released its post-meeting statement.

Traders had been speculating that if the jobs report was strong with solid wage growth — an indicator of inflationary pressures — the chances of a Fed rate hike in March would increase. The Fed has said it would hike three times this year, and its first hike was expected to come in June.

"I think the stock market should take this well," said Scott Clemons, chief investment strategist at Brown Brothers Harriman. "We need the labor force to keep improving to put more money in people's pockets. The payrolls should be taken as good news."



The jobs report also included a rise in the unemployment rate from 4.7 percent to 4.8 percent. There was also a revision in November's report, which pared back job growth by 40,000 to 164,000.

McCarthy said the wage number shows that supervisory personnel pay increased less than other workers. Non-supervisory wages rose by 0.3 percent, and with an average gain of 0.1 percent — or 2.5 percent year over year, there would be no increase in management pay.

"Part of the wage story was this was a bad bonus year," he said.