US TSYS: Early Gains Faded With All Eyes On Payrolls

Treasuries edged higher Thursday as incoming labor market data painted a mixed picture ahead of Friday's crucial nonfarm payrolls report.

• In a session that brought multiple employment indicators, a sizeable ADP private payrolls miss at 0815ET (99k vs cons 145k) saw futures jump to session highs.
• Markets largely looked past the slightly stronger-than-expected weekly jobless claims and quarterly productivity data 15 minutes later, allowing Dec TYs to extend to 114-29+ (up 11.5 ticks on the day) before a solid ISM Services report at 1000ET  51.5 (cons 51.4) triggered a reversal lower in TYs back to session lows.
• Afternoon trade was relatively subdued, with Treasuries regaining ground into the close to settle in the middle of the session's rang, with equities stabilizing and attention turning toward Friday's employment report.
• The closely-watched 2s10s set a fresh 2-year high (1.532bp) intraday after the ADP data but ended up inverting further post-ISM, as the short-end remained relatively anchored. September Fed rate cut pricing again neared 50/50 for 50bp in Fed Funds futures, before fading to 40/60.
• Friday's calendar is dominated by payrolls and their implications for Fed policy - our August employment report preview is here (PDF); later in Friday's session we will hear from the FOMC's Williams, Goolsbee and Waller who are anticipated to provide a final steer on the rate outlook going into the pre-September meeting blackout starting this weekend.
• Latest levels: Dec 10-Yr futures (TY) up 5.5/32  at 114-23.5 (L: 114-16 / H: 114-29.5). The 2-Yr yield is down 0.4bps at 3.7497%, 5-Yr is down 0.9bps at 3.5404%, 10-Yr is down 2.5bps at 3.7307%, and 30-Yr is down 3.4bps at 4.0234%.