Rates Grind Higher on Strong Services Data

ISM services data sends rates higher. ISM Services PMI proved strong in August, coming in at 54.5 despite the forecast of 52.5. Swap rates and Treasury yields spiked 6-8bps higher after the release, the 2-year and 10-year yields now at 5.02% and 4.28%, respectively. The 2-year yield is +24bps off the lows from last week (4.78%), while the 10-year is ~20bps higher from last week’s floor of 4.08%.

Fed Beige Book shows modest economic growth. The August Fed Beige Book, a survey of Fed districts released 8 times per year, reported that most districts saw modest economic growth in July and August. Tourism spending was stronger than expected, likely the last stage of pandemic-era travel demand, while other retail spending continued to slow especially on non-essential items. Consumers reported lower savings, with borrowing supporting spending. Job growth was slower across districts, but most continued to see labor supply and demand imbalances. Wage growth was elevated in most districts, exceeding expectations set during the first half of the year. Overall, the release painted a picture of a resilient economy with mounting headwinds.

Yen remains under pressure, Japan warns of intervention. Potential government intervention has become a focal point for investors as the yen weakens. Japan issued their strongest warning today, as Vice Finance Minister for International Affairs Masato Kanda said, “If these moves continue, the government will deal with them appropriately without ruling out any options.”