Relatively Contained Post-NFP Selling, Mid-Range Indecision
As expected, markets clearly reserved some level of reaction to Payrolls data despite what we suggested was an overdeveloped temptation to dismiss economic data that might be impacted by Hurricane Sandy. The BLS was kind enough to go out of their way to mention that Sandy had limited impact on their data collection, a fact that casts the 146k payrolls print in quite a different light (though not so different after last month's initial 171k was revised down to 138k). Combine it with another Labor Force Participation Rate drop that more than offsets the U/E drop and we're right back to "stagnant."
It would seem that bond markets have done their best to trade these realities back into the market after the obligatory knee-jerk sell-off. Both MBS and Treasuries came into the domestic session in relatively neutral territory after one of the quietest overnight sessions of the week. Fannie 3.0s sold a quick 3/8ths of a point before retracing about half of those losses ahead of the domestic stock market open.
10yr Treasuries didn't bounce back nearly as well, with the initial move taking them from 1.57's to 1.63+. They only retraced to mid 1.61's before rising back to high 1.62's ahead of the stock open and are currently in the process of fighting off a break above previous highs.
As long as Treasuries continue to fight off that technical break, it hearkens a stable enough intraday interest rate environment for MBS to hang on to their 'bounce back' levels, which, in terms of Fannie 3.0s is essentially 105-01 or higher. We're currently sitting at 105-02, which is 6 ticks lower from y'day, as stocks are moving lower slightly at the open. That said, we wouldn't count on a lock-step stock lever connection for the rest of the day--just looking for the most relevant near term guidance to help resolve the mid-range indecision.