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ISM Services Weighs On Year-End Rates But Holds Post-Payrolls Climb

  • FOMC-dated OIS have lifted off lows seen after the miss for ISM services, which included the lowest prices paid since May 2020 and followed the sharp decline in the manufacturing counterpart last week.
  • 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.
  • A dearth of data tomorrow and the continued FOMC media blackout sees headlines as potential drivers although it would likely take significant surprises to meaningfully move away from the current skip narrative for next weeks’ decision.

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