2-Year Treasury Yields Drop to 12-Month Low

Yields lower ahead of tomorrow’s jobs data. UST yields fell today as markets digested soft ADP employment data ahead of upcoming labor data.  Tomorrow’s release is expected to show nonfarm payrolls grew by 75k in August vs 73k in July, and the unemployment rate is expected to increase from 4.2% to 4.3% on the month. 2-year UST yields ended 3 bps lower at 3.59%, setting a 1-year low, while the 10-year yield fell 6 bps to 4.16%. Meanwhile, equities rallied today, with the S&P 500 climbing 0.83% to land at a new record high of 6,502.08.

ADP miss reinforces labor concerns. ADP data showed the private sector added 54k jobs in August, below expectations of a 68k advance and July’s 106k. August’s result was the second lowest this year. Wage growth largely held steady, with job switchers seeing a 7.1% pay increase compared to 4.4% for those staying put (vs. 7.1% and 4.5% in July, respectively). This month’s added jobs came mainly from the leisure and hospitality sectors, alongside business and construction, while declines in health and manufacturing weighed on the data. On the whole, July ADP data showed a cooling labor market and stagnant wage growth that may foreshadow tomorrow’s labor data release.

Senate confirmation hearing for vacant Fed seat begins. Stephen Miran, President Trump’s nominee to replace Adriana Kugler on the Federal Reserve Board, appeared before the Senate Banking Committee today. Miran faced concerns from both Democrats and Republicans on his ability to serve independently, stating he intends to take an unpaid leave of absence from his White House role and return when his Fed term expires in January. Miran told committee chairman Tim Scott, “If I’m confirmed to this role, I will act independently, as the Federal Reserve always does.” However, many were unconvinced, with Senator Jack Reed saying, “Your independence has already been seriously compromised by your statement – you are technically an employee of the president…but an independent member of… the Federal Reserve? That’s ridiculous.”