Rates Rise Despite Private Payrolls Miss

Rates climb higher on taper talk, rate hike commentary from Fed Vice Chair Clarida

Swap rates and Treasury yields ended a roller coaster session modestly higher as hawkish comments from Fed Vice Chair Clarida and a record ISM services reading offset a weak private payrolls report. The 10-year Treasury yield traded in an 8 basis point range on the day, falling to a six-month low after the ADP private payrolls report before bouncing higher on Clarida’s comments. The 10-year would ultimately close 1bp higher at 1.18%, setting the stage for an eventful end of the week that includes initial jobless claims tomorrow morning and nonfarm payrolls on Friday.

Private payrolls data show only 330,000 jobs were added in July, well below the expected 690,000

After 692,000 jobs were added in June, private payrolls grew at a substantially lower pace last month– the majority of July’s gains were in the services sector (318,000 out of the 330,000), of which 139,000 were in leisure and hospitality.  ADP Chief Economist Nela Richardson commented, “Bottlenecks in hiring continue to hold back stronger gains, particularly in light of concerns tied to viral variants.”  Private payroll gains have trended lower over the past two months, and the report serves as a preview of Friday’s jobs report, which some Fed officials often use to gauge the speed of the economic recovery.

Fed Vice Chair Richard Clarida forecasts a rate hike in 2023

Earlier today, Claria commented, “I believe that these … necessary conditions for raising the target range for the federal funds rate will have been met by year-end 2022.”  While he failed to provide a timeline for tapering the Fed’s monthly asset purchases, Clarida believes it could happen “later this year.”  The economy is still 6.8 million jobs short of pre-pandemic levels, though Clarida expects robust employment gains this fall.