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Off ADP-Instigated Cheaps But Still A Significant Sell-Off Ahead Of Payrolls

US TSYS
  • Cash Tsys have made decent progress paring losses that were primarily driven by the substantial ADP beat (497k vs cons 225k) and with a helping hand from a hawkish Logan (’23 voter) earlier.
  • The paring of losses has been helped by some since questioning a seasonality boost for ADP, whilst other data had strong aspects (ISM services headline beat, higher JOLTS quits rates and lower continuing claims) but were sufficiently nuanced to prevent a further cheapening ahead of tomorrow’s payrolls report.
  • Intraday gains have been concentrated at the front-end though and the overriding takeaway, despite moving off cheaps, is a large sell-off in 5-10Y tenors with double digit increases in real yields weighing on risk assets (5Y real +11bp at 2.16% off an earlier high of 2.25% that touched the highest since 2008).
  • 2YY +5.9bp at 5.004%, 5YY +12.1bp at 4.370%, 10YY +11.4bp at 4.045% and 40YY +8.1bp at 4.009%.
  • TYM3 at 110-19 (-24+) is off lows of 110-05 on particularly elevated volumes of 2M. It cleared key support at 110-27+ (Mar 2 low) and opens 110-00 (continuation of Nov 9, 2022 low).
  • The same broad trend is seen in Fed pricing through the day, ultimately holding stronger on the day, especially into the turn of the year. Cumulative change from 5.08% effective +22bp Jul (+1.5bp), +36.5bp to 5.445% terminal in Nov (+4bp) and the first cut from current levels priced for Jun with a cumulative -12bp (+6bp on the day).
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