Treasurys Plunge, Yields Highest Since December After Blockbuster ADP Print

Remember a few Fridays ago when everyone was panicking about whether or not the reflation narrative had been undermined for good as 10Y yields hit YTD lows? Everyone looked set to fade the meme. The “Trump trade” was done.

Or so we thought.

Four days later Dudley and Williams jawboned the trade right back on and then, in what amounted to a Tiny Tim-ish miracle, Donald Trump successfully read off a teleprompter for an hour. It was off to the reflationary races.

Well on the heels of this morning’s ADP blowout, March odds are now 100% and as for those 10Y yields we were all so concerned about just two weeks ago… yeah well we’re sitting at the highest levels since December.

10s

More via Bloomberg

  • Treasuries slumped, pushing 10-year yields to the highest level since December, after a measure of U.S. private-sector job growth for February exceeded the most optimistic expectations two days before the Labor Department’s monthly employment report.
    • Yields were higher by 4-6 basis points at about 9:10 a.m. in New York as the market priced in a faster pace of Fed rate increases following the one already expected next week. The 10-year climbed as much as 6.4 basis points to 2.582 percent, the highest level since Dec. 20. Treasury plans to sell $20 billion of the 10-year note in an auction at 1 p.m. The new notes yielded 2.575% in when-issued trading, above 10-year auction stops since July 2014.
    • ADP Employment increased 298k in February vs 187k median est. in Bloomberg survey, in which highest est. was 255k; February employment report is forecast to show 190k increase in nonfarm payrolls based on median est., which may rise if economists revise higher based on ADP
    • Yields across the curve touched the highest levels this year, led by the 5Y, which climbed 6.2bp to 2.111%
    • 5s30s yield curve flattened, touching 104.5bp, within 5bp of lowest levels of recent years
    • USD OIS pricing upgrades odds of 25bp March hike to 87% (versus 83% Tuesday), while odds of a second 25bp hike in September, based on 5th Fed dated OIS, climbed to 97% from 87%
    • IG credit issuance slate also in focus after nearly $40b priced over previous two sessions, weighing on Treasuries; United Health Group joins Wednesday’s slate with $benchmark 10Y and 30Y offering

*****

Now cue the 10Y auction….

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