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US Treasury Yields Drop on ADP Employment & ISM Services Index

  • Although the economic data missed analyst expectations, the non-manufacturing sector and labor market continues to grow
  • Trade conflict and tariffs continue to be a noted concern among survey respondents
  • Treasury yields drop on the weak data with the 10-year slipping to its lowest level since November 2016

The latest report from the Institute of Supply Management (ISM) released their report on the Non-manufacturing industries Wednesday morning, which showed that the services sector continues to growdespite missing market expectations. The headline figure came in at 55.1, slightly under expectations of 56.0 and falling from last month’s reading of 56.9, and points to slower growth in the largest portion of the US economy.

US Treasury Yields fell on the release as the disappointing figures contributed to weak economic data also released this morning, including ADP employment figures that came in soft. Market participants could be taking this as bolstering the Federal Reserve’s case to cut interest rates, a theme that has been driving the market in recent months. The market is pricing in a 100 percent chance of a rate cut for July’s meeting according to overnight swaps.

CBOE 30-Year Treasury Yield (TYX): 3 – Minute Time Frame (July 3 Intraday)

TYX

June’s reading reflects continued softening in the sector but still expanding reflected by the reading coming in over 50.0. Contributing to weakness in the headline figure was a decrease in business activity, new orders, and employment compared to the month prior. Prices saw a rise for the 25th consecutive month which is likely due to tariffs and noted as a concern by ISM survey respondents. Although, one participant noted some suppliers are using the trade issue to “provide cover to increase margins.”

--Written by Thomas Westwater, Intern Analyst for DailyFX.com

Contact and follow Thomas on Twitter @FxWestwater

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