Mon-Tue: ISM Services prices hit 74, the 10-year touched 5.31, then gave it back.

Written Tuesday October 6 after the close, covering Monday October 5 and Tuesday October 6. No morning plan was registered for these sessions, so there is nothing to grade. Monday's one big release was ISM Services, and the line that mattered was not the headline but the Prices index, at 74.0, its highest since July 2022. The 10-year yield rose to 5.311 percent and DXY to 102.17. Tuesday brought a wider trade deficit and a softer 3-year auction, and the 10-year fell back to 5.269 percent anyway. Across the two sessions most of the board finished close to where Friday left it. This note sets out what printed, what moved, and one open question from Friday that the official data has now answered.

The last note in this thread was the Friday recap, where a weak payrolls print failed to rally bonds and our pre-registered map failed on all four calls at the close.

First, Friday's open question is answered

The Friday recap left a test on the table: if Treasury's official curve for October 2 showed the 2-year down while the 10-year rose, the long end had broken away from policy expectations (a bear steepener, pointing at term premium). The piece said that explanation would be wrong if the official 2-year also rose.

It did. The official 2-year yield went from 4.78 percent on Thursday October 1 to 4.83 percent on Friday, up 5 basis points; the 10-year went from 5.24 to 5.28, up 4 (sources: FRED DGS2, FRED DGS10). Both ends sold off by about the same amount. So the bear-steepener explanation is out, by the rule we set before we saw the data. What is left is the plainer reading: the front end did not believe the weak print would keep the Fed on hold either. That is consistent with the "already priced, or not believed" mechanisms in our guide to why a weak jobs number can fail to rally bonds, but it does not tell us which.

Monday October 5: ISM Services, and a Prices index at 74

From the ISM September Services report, released Monday at 10:00 AM ET (source: ISM Report on Business via PR Newswire):

• Services PMI: 54.9, down from 55.4 in August. Consensus was 55.2 (source: investingLive).
• Business Activity: 56.5, down 5.2 points from 61.7. New Orders: 59.8, from 60.9.
• Employment: 50.1, from 47.8, back above 50 for the first time in three months.
• Prices: 74.0, from 72.6. ISM notes this is the highest since July 2022 (74.5) and the sixth reading above 70 in seven months.

Read alongside Thursday's ISM Manufacturing Prices index at 77.9 (covered in the Friday recap), both halves of the economy reported input prices rising at the fastest pace in years in the same week. The activity lines cooled a little; the price lines did not.

The tape on Monday, closes versus Friday:

• 10-year yield 5.311 percent, up 3.4 basis points from 5.277; 5-year 5.066 from 5.055; 30-year 5.665 from 5.630 (Yahoo Finance ^TNX, ^FVX, ^TYX daily closes).
• DXY 102.17, up from 101.93 (Yahoo DX-Y.NYB).
• Gold futures 4,156.80, down $5.50 (Yahoo GC=F).
• USD/JPY 157.87 and EUR/USD 1.1227 at 4:00 PM ET (Yahoo hourly bars; Yahoo's daily FX close field repeats the open on these dates, so we use the 4:00 PM ET bar instead).
• Brent futures 100.32, down $1.93 (Yahoo BZ=F).
• S&P 500 7,773.95, up 0.66 percent (Yahoo ^GSPC).

Where the yield move came from. Treasury's official numbers for Monday split the move cleanly. The 10-year nominal yield rose from 5.28 to 5.31 percent, and the 10-year TIPS yield rose from 2.92 to 2.95 percent (sources: FRED DGS10, FRED DFII10). The gap between them, the 10-year breakeven, was 2.36 percentage points on both days. So all of Monday's rise was in real yields; inflation compensation did not move. A hot prices index that raises real yields but not breakevens is the market saying "the Fed will lean against this," not "inflation will run higher for longer." It is one session, and a 3 basis point move in a rounded official series, so we hold that reading lightly.

The euro had its own driver. FXStreet attributed the week's euro weakness mainly to French fiscal stress, citing Prime Minister Sébastien Lecornu's government's €54 billion savings drive, and to Spain calling a snap election (source: FXStreet, Oct 7). That fits EUR/USD falling more on Monday than DXY's rise alone would suggest, but we have not checked French spread data ourselves and do not lean on it.

Tuesday October 6: a wider trade gap, a softer 3-year, and yields fell

Trade. The goods and services deficit widened to $105.6 billion in August from a revised $92.8 billion in July. Exports rose $4.5 billion to $315.2 billion; imports rose $17.2 billion to $420.8 billion. The goods deficit widened $12.8 billion to $136.6 billion and the services surplus held at $31.0 billion (source: Census Bureau and BEA, U.S. International Trade in Goods and Services, Oct 6). The reference piece published alongside this one explains why a print like this rarely moves the dollar on the day.

The 3-year auction. Treasury sold $58 billion of 3-year notes at a high yield of 4.932 percent. Bid-to-cover was 2.62, down from 2.72 in September. Indirect bidders took 57.6 percent of the competitive amount accepted, down from 62.1 percent in September and the lowest of the five 3-year auctions since June; direct bidders took 31.7 percent and primary dealers 10.7 percent (source: Treasury Fiscal Data, auctions query). We do not have the when-issued yield at 1:00 PM, so we make no claim about a tail. On cover and on the indirect share, it was softer than the recent run. For how to read those numbers, see our guide to Treasury auction demand.

Oil. Brent traded down to about $97.4 on Yahoo's hourly bars around 8:00 AM ET, then recovered to about $101.15 by 4:00 PM ET. Two reported drivers on the day: JPMorgan's estimate that Gulf crude exports were back at about 98 percent of pre-conflict levels (reported by Trading Economics), and the G7's 100 million barrel emergency release agreed October 2 and coordinated through the IEA (source: Euronews). Brent finished Tuesday higher than Monday's 100.32, so oil was a morning story, not a closing one.

Fed speakers. Vice Chair for Supervision Bowman spoke on bank regulation at 10:45 AM ET (source: Federal Reserve calendar). Several regional presidents had appearances scheduled; we found no reporting of policy remarks from them that moved markets, and we do not attribute Tuesday's move to them.

The tape on Tuesday, closes versus Monday:

• 10-year yield 5.269 percent, down 4.2 basis points; 5-year 5.028; 30-year 5.641 (Yahoo daily closes). Treasury's official curve for Tuesday was not yet on FRED at the time of writing.
• DXY 101.83, down 0.34.
• Gold futures about 4,193 at 4:00 PM ET, up roughly $36 (Yahoo hourly bar; the daily settle had not posted when we wrote this).
• USD/JPY 158.07 and EUR/USD 1.1264 at 4:00 PM ET (Yahoo hourly bars).
• S&P 500 7,818.93, up 0.58 percent, a record close per MarketScreener.

The two sessions together

Market	Fri Oct 2 close	Mon Oct 5 close	Tue Oct 6 close	Two-day change
10Y yield	5.277%	5.311%	5.269%	-0.8 bp
DXY	101.93	102.17	101.83	-0.10
Gold (GC=F)	4,162.30	4,156.80	~4,193	~+31
USD/JPY (4 PM ET)	157.78	157.87	158.07	+0.29
EUR/USD (4 PM ET)	1.1256	1.1227	1.1264	+0.0008
Brent (BZ=F)	102.25	100.32	~101.15	~-1.10
S&P 500	7,722.72	7,773.95	7,818.93	+1.2%

Sources: Yahoo Finance query1 daily closes for ^TNX, DX-Y.NYB, GC=F (Monday and Friday), BZ=F (Monday and Friday) and ^GSPC; Yahoo hourly 4:00 PM ET bars for USD/JPY, EUR/USD, and Tuesday's gold and Brent.

Net, Monday's hot prices index was fully handed back on Tuesday in the 10-year and in DXY, while equities rose both days. The plainest honest summary is that the two sessions did not establish a new direction. What they did add is one more data point on how this market treats inflation-side news: Monday's yield move came through real yields, not breakevens, which is what a market expecting the Fed to respond would do.

What we do not know

• Why yields fell on Tuesday. The scheduled news (wider deficit, softer 3-year auction) does not obviously point to lower yields, and oil had recovered by the close. Candidates include the morning oil drop feeding through to rates before oil bounced, and simple retracement after Monday. We cannot separate them with the data we have, and we are not going to pick one.
• Current Fed pricing. The last named reading we have is CME FedWatch as reported by Phemex at 00:06 UTC on October 5, before ISM: 77.9 percent hold and 22.1 percent for a 25 basis point hike at the October 27-28 meeting, with a cumulative 25 basis point hike by December at 62.3 percent (source: Phemex, citing CME FedWatch; meeting dates per the Federal Reserve calendar). We did not capture a post-ISM reading from CME and do not report one.

What would change the read

Wednesday October 7 carries a $39 billion 10-year reopening at 1:00 PM ET (source: Treasury Fiscal Data) and the minutes of the September 15-16 FOMC meeting at 2:00 PM ET (source: Federal Reserve calendar). That meeting raised the target range by 25 basis points to 3.75 to 4.00 percent on a 12-0 vote (source: Fed statement, Sep 16). A conditional reaction map for Wednesday was committed to the repository before the session and will be graded at the close. No unconditional call here; two conditional statements:

• If the minutes describe most or many participants seeing further increases as likely appropriate and the 10-year rises through Monday's 5.311 percent close with the move again coming through real yields, then Monday's reading (inflation-side news lifts real yields, not breakevens) gets a second observation. Wrong if a hawkish minutes day lifts breakevens instead, or fails to lift the 10-year at all.
• If the 10-year reopening shows a lower indirect share than September's 79.2 percent and bid-to-cover below September's 2.71 (source: Treasury Fiscal Data), then Tuesday's softer 3-year demand was not a one-off. Wrong if the 10-year sale comes in at or above both September figures.

What to read alongside

• A plain-English guide to the trade balance and the dollar (today's reference piece)
• ISM Manufacturing versus Services
• Real yields and breakevens
• How to read FOMC minutes

Nothing on this site is investment advice or a recommendation to trade. Most retail traders lose money. Conditional statements published here are falsifiable hypotheses, graded in public, not signals.