Pondering Bond Markets Surprising Lack of Follow-Through on Weak NFP
As you may have noticed, bond markets have given up the better part of their post-NFP gains over the past hour. The extent of the pull-back certainly doesn't seem to make good sense at first glance, so let's go over a few potential explanations. Really, there are only 3, and they're pretty straightforward.
The first was actually covered in the first update following the data. Here's the important part:
If there's any saving grace for this data, it's the current private payrolls headline which showed 142k jobs created vs a 185k forecast. If we're to accept that the weather had as much of an impact as some have suggested, this would actually mean today's report is fairly close to consensus. As such, if we see bond markets make no further progress than their initial jolt into positive territory, this might be why. In other words, the mere POSSIBILITY that weather can explain away some of the gap means there's a chance this isn't weak enough for us to see any further progress.
Additionally, we can consider that the stock lever remains in play. Much of the pull-back toward more tempered gains in bonds falls in line with improving stock futures (and now with cash trading since 9:30am). I'm somewhat hesitant expect too much lock-step connection here though, given that the connection seems to be breaking down a bit in recent days.
On a final, and most optimistic note, the pull-back could simply be a consolidation before continuing into stronger territory. We'll have to wait and see on that one, and most likely, we're dealing with the first point above. Keep in mind, that one still leaves the door open for some bounce back into stronger territory. It's only point was to explain why the immediate rally may have stopped short of expectations.
Fannie 4.0s are currently up 8 ticks at 104-29 and 10yr yields are down 1.6 at 2.686.