Rapid Sell-off Leaves the Yield Curve at its Steepest Since July

Rates surge on heavy corporate issuance. Swap rates and Treasury yields rose across the curve today, largely the result of an estimated $30-40 billion in new corporate bond offerings, which included companies such as Walmart, McDonald’s, Lowe’s, and Nestle. This rapid emergence of supply of bonds led the 2-year yield higher by ~12 bps to 3.503% and the 10-year yield to a ~16 bp increase to 3.349%. The yield curve steepened today, the 2s10s spread closing at -16bps, its steepest level since early July.

Stronger than expected service-sector activity furthers yield sell-off. The ISM non-manufacturing PMI came in at 56.9 in August, slightly higher than the July mark while beating market forecasts of 55.1. This signaled the strongest growth in services activity in four months, allowing the Fed to potentially feel even more comfortable about a 75 bp rate hike at the September FOMC meeting.

Day ahead. Wednesday is highlighted by public comments from five Fed speakers, including Richmond Fed President Thomas Barkin and Fed Vice Chair Lael Brainard at 9:00 AM ET and 12:35 AM ET, respectively. Data on the U.S. trade deficit level is set for release at 8:30 AM ET.