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ISM Miss Helps Tsys Snuff Bearish Engulfing Candle

US TSYS
  • Treasury futures reversed early losses, gapped to new session highs (TYU3 114-03.5 high, yield tapped 3.6563% low) after May ISM services miss. Curves rebound with short end rates outperforming (2s10s taps -77.212 high).
  • Despite the bounce, technical focus is on the bearish engulfing candle posted Friday, signaling the end of the recent recovery and suggesting potential for a continuation lower. Attention is on key short-term support and the bear trigger at 112-29+, the May 26 / 30 low.
  • May ISM services disappointed: 50.3 (cons 52.4) after 51.9, printing the lowest since Dec’22. New orders led the decline at 52.9 (-3.2pts), driven domestically rather than external.
  • The prices paid index is notable, dropping to lowest since May’20 at 56.2 (-3.4pts) as they build further on March’s particularly sharp -6.1pt drop. Employment component also fell back below 50 (49.2, -1.6pts) for first time since December.
  • FOMC-dated OIS have lifted off lows seen after the ISM services miss. Near-term meetings are relatively little changed compared to the start of today’s NY session with June +7bp (unch) and July +20bp (-1.5bp) for a terminal that doesn’t fully price another hike.
  • Beyond that, implied rates are down more heavily on the day but remain notably higher than before Friday’s payrolls report. For example, the 4.99% implied effective for the Dec FOMC (marking 9bp of cuts from current levels) is down 4bps since the start of the session but still 11bps higher since payrolls.
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