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Hawks Sharpen Liftoff Framework

US TSYS SUMMARY
Tsys drift not far above the narrow range that held through muted overnight trade, mixed levels after the bell with the long end outperforming on decent overnight volumes (TYU1>1.6M).
  • Sharply weaker than expected July ADP private employ data (+330K vs. +683K est) helped kick off a rally that held into midmorning.
  • Market support evaporated quickly on one-two punch of data and Fed speak: surge in July ISM Services PMI to record high of 64.1 followed by comments from Fed VC Clarida virtual event where he sees see upside risk to his inflation projection, says "2023 rate liftoff consistent with framework."
  • Additional comments from Fed Vice Chair Clarida on taper / hike timing:
    • If my baseline materializes, could see myself supporting announcement of a taper later this year.
    • Decisions to taper and to hike rates are completely separate. Not thinking about hiking rates. Rate hikes not on my (and I don't think Committee's) radar screen.
  • Tsys sold off/extended session lows over the next hour (incidentally, so did German Bunds, equities and WTI crude). Discounting the data and mon-pol comments, rates drew short cover support back to mildly mixed range through the NY close, focus on Friday's July NFP (+870k est vs. +850k in June).
  • The 2-Yr yield is up 1.2bps at 0.1822%, 5-Yr is up 2.9bps at 0.6761%, 10-Yr is up 1.3bps at 1.1854%, and 30-Yr is up 0.1bps at 1.842%.
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