It was a big day for US economic data yesterday. Both the ISM manufacturing report and the ADP employment data came out lower than expected. This data and the Federal Reserve (Fed) keeping rates stable brought down the treasury bond yields and helped the Nasdaq index to recover some losses.
Treasury bond yields fell between 9 and 12 basis points
The main market catalyst continued to be fixed income yesterday. Treasury bond yields fell between 9 and 12 basis points along the curve, with the 10-year bond back around the 4.80 zone, far from 5% where it was a few days ago.
US Treasury Department to increase size of most of its debt auctions
One of the reasons for this extraordinary drop in market interest rates was the announcement by the US Treasury Department that it would increase the size of 10-year new auctions. As this was much lower than expected it triggered a strong rebound in bond prices, which caused yields to fall considerably.
ISM manufacturing report and ADP private sector payrolls below expectations
The US ISM manufacturing report and the ADP employment data were also released yesterday. They both came out lower than expected.
The ADP private sector payrolls for October came out at 113,000. Although this figure is lower than expected, it is stronger than the last reading. The ISM manufacturing report fell to 46.7 vs the expected 49 and the JOLTS job openings in September remained in line with recently published figures at 9.55 million.
The next important data to be release will be Friday's jobs report. This will give the Fed and investors a new detailed read on the state of the labour market, which remains very tight.
Fed thought to have reached the end of its interest rate hike cycle
At yesterday's meeting of the Federal Open Market Committee of the Fed, interest rates were left unchanged, as expected. The most widespread opinion among market analysts and investors is that the Fed has already ended its interest rate hike cycle. An opinion reflected in the yields of treasury bonds, which have stopped rising. This investor sentiment will be confirmed if employment data shows a slowdown and inflation figures show declines in the coming months.
Although Fed Chief, Jerome Powell, did say inflation remains high and the labour market remains tight at the press conference, he did not refer to new rate hikes. Investor positive sentiment was reinforced by his speech.
Nasdaq rose more than 1%
The stock market celebrated the fall in yields. The Nasdaq index had a strong performance yesterday as technology companies are considered to be the most sensitive to interest rates. The index rose by over 1%.
TECH100 monthly chart, November 2, 2023. Source: CAPEX.com WebTrader.
- Treasury bond yields fell between 9 and 12 basis points.
- The 10-year bond fell around the 4.80 zone.
- The US Treasury Department to increase the size of 10-year new auctions.
- ADP employment data for October showed 113,000, which is weaker than expected.
- The US ISM manufacturing report fell to 46.7 vs the expected 49.
- The Fed kept rates stable, and the end of rate hikes is thought to have been met.
- The Nasdaq index was up more than 1%.
Sources: Bloomberg, Reuters