Rates Grind Lower Amid Weak Service Level Activity Data

Rates decline following weak services sector data. Swap rates and Treasury yields fell across the curve after drifting higher in the morning, with weak ISM Services data the catalyst for the risk-off mood. The 2-year yield closed at 4.47% after reaching an intraday peak of 4.57%, a net decrease of 3bps on the session. The 10-year yield moved 1bp lower to 3.68%. Elsewhere, equities dropped lower, the DOW falling 0.59% while the S&P 500 declined 0.20%.

Today’s data indicate slower service sector growth. A slew of closely watched measures of economic growth were released today, which showed near-stagnation in the US service sector as business activity and orders slipped. The ISM service index declined to 50.3 from 51.9 in April, the lowest level this year. A value below 50 indicates contraction. Eleven sectors reported growth, led by accommodation and food services, while 7 reported a decrease in activity. The ISM Prices index also indicated a reduction in inflationary price pressures, with the measure of prices paid for materials and services declining to 56.2 in May from 59.6 in April. Today’s data comes after the ISM manufacturing survey, which showed the longest period of contracting activity since 2009.

Day ahead. Economic optimism data will be released at 10 AM. Crude oil figures will follow at 4:30 PM.