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Rates Hugging Lows After Strong ISM Services Data

US TSYS
  • Treasury futures having been drifting sideways since marking session lows in the first half. Early data driven volatility as rates bounced following S&P Global US Services PMI comes out a little lower than expected (50.5 vs. 51.0 est), Composite PMI (50.2 vs. 50.4 est). Futures had pared gains prior to release. Markets also listening to UK Bailey comments on inflation - close to May forecast.
  • Support was short lived, however, as futures gapped lower following higher than expected ISM Services Index (54.5 vs. 52.5), Prices Paid (58.9 vs. 56.8 prior). reacceleration to the highest reading since February after a dip in July added further evidence that the US economy has been resilient through Q3, with the ISM noting the 54.5 print is consistent with 1.6% Q/Q annualized real GDP growth (albeit that's lower than most current estimates).
  • Dec'23 10Y futures breached initial support of 109-28.5 (Aug 29 low) on the way to 109-19.5 session low. An extension lower would signal scope for 109-09+, Aug 22 low and a bear trigger. A break of this level would strengthen a bearish theme.
  • Little react to Bank of Canada leaving its key lending rate at the highest since 2001 at 5% Wednesday and signaled officials remain prepared to hike again because of the risk elevated price gains become entrenched amid slow progress wrestling down inflation.
  • Focus turns to Thursday's weekly claims, ULC and flurry of Fed speakers Thursday, ahead late Friday's policy blackout at midnight
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