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Big ADP Private Employ Miss Spurred Early Rate Bounce

US TSYS
Tsy 10Y futures hold steady into the close, curves flatter with bonds outperforming mildly weaker levels in the short end late Wednesday.
  • After some brief volatility, Tsys bounced off weaker levels after a huge miss in ADP private employment data (+374k vs. +625k est). While historical correlation between the ADP data and headline Non-Farm Payrolls due Friday is inconclusive -- risk-off support in rates did gain some momentum.
  • Tsys started to scale back support prior to the midmorning ISM data: Mfg PMI rose 0.4pt in Aug to 59.9, recovering from July's lowest level since Jan and beating market forecasts (BBG: 58.5). Significant supply-chain issues remain, however, tempering the better than expected data while rates held a narrow range through the closing bell.
  • Meanwhile, US$ index continued to inch lower (DXY -.176 at 92.450) and equities held nominal gains (ESU1 +3.25).
  • Decent pick-up in swappable corporate issuance ($7.25B) generated some hedging flow as did better put trade across the curve. Otherwise, participants stayed close to the sidelines ahead Fri's August employ data, median estimate of +780k.
  • The 2-Yr yield is up 0bps at 0.2094%, 5-Yr is up 0.3bps at 0.7804%, 10-Yr is down 0.7bps at 1.302%, and 30-Yr is down 1.1bps at 1.9215%.
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