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Services PMI Slowdown Spurs Treasury Rally

US TSYS
  • Tail-wind for European rates triggered overnight after weaker than expected European Services PMI carried over to US markets. Cautious short covers reported with many leaning short in anticipation of hawkish messaging from CBs at Jackson Hole eco-summit that starts Thu' evening.
  • Treasury futures extend the early rally after S&P PMIs comes out lower than estimated: S&P Global US Manufacturing PMI (47.0 vs 49.0 est), Services (51.0, 52.2 est), Composite (50.4, 51.5 est).
  • Rates continued to grind higher after Preliminary Payrolls Benchmark Revision came out lower than some expected. The preliminary estimate of the payrolls benchmark revision based on the latest QCEW suggests the level of payrolls could be revised lower by -306k in the twelve month period up to March 2023.
  • Heavy Treasury futures volumes reported, partially tied to post-data squaring and to a surge in quarterly futures from Sep'23 to Dec'23 (Dec'23 takes lead quarterly position Thursday, August 31).
  • Today's long end led rally weighed on curves: 3M10Y -14.644 at -127.504, 2Y10Y -4.213 at -76.825. Contributing to the move: several large flatteners Blocked/crossed on the day: 2Y/10Y, 5Y/10Y and 5Y/30Y Ultra.
  • Short end support did, however, temper rate hike projections through yr end: Sep 20 FOMC is 11% w/ implied rate change of +2.7bp to 5.356%. November cumulative of +10.1bp at 5.43, December cumulative of 7.9bp at 5.408%. Fed terminal holding has climbed to 5.42% in Nov'23.
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