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MBS Day Ahead: How NFP Matters and How it Doesn't

By: Matthew Graham
Posted Fri, Oct 6 2017, 8:22 AM

NFP, or "nonfarm payrolls" (the principle component of the big jobs report officially known as the "Employment Situation") are a bond market institution.  No other data has consistently had as much of an impact on rates over the years.  It is to bonds what the day after Thanksgiving is to shopping.  It will always be associated with an abundance of transactions whether or not there are good deals to be had.

In other words, traders have come to treat NFP day as a key ingredient in their trading strategies simply because everyone else is doing the same.  NFP doesn't have to contain any major insights or suggestions about future market momentum in order to garner big reactions on the day it comes out.  Some traders are simply waiting for the event to pass and then are prepared to capitalize on whatever post-NFP bias emerges.

In today's case, we know there is an asymmetric risk associated with a "beat."  This has to do with the Hurricane effect already seen in the ADP numbers and reflected in the low estimates for NFP (a scant 90k).  It means markets are already prepared to forgive a "miss."  As such, a big big beat would do more damage than a big miss would do good.  

That's really the main way that NFP could matter in the bigger picture today, and even that wouldn't necessarily guarantee a lasting selling-spree.  No... NFP's key role today will simply be to HAPPEN.  Once it does, we'll get to see if chatter from the street speaks to deep enough pockets.  What chatter?  Simply put, surveys and anecdotal comments suggest some buyers are interested in getting back into bonds as 10yr yields rise above the mid 2.3's, but are waiting until after NFP to do so.  If that's the case, an initial negative reaction to a "big beat" wouldn't even matter.  We just need the clock to advance an hour so we can see what cards everyone is holding.


MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
FNMA 3.5
102-29 : -0-03
Treasuries
10 YR
2.3661 : +0.0161
Pricing as of 10/6/17 8:20AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Friday, Oct 06
8:30 Non-farm payrolls (k)* Sep 90 156
8:30 Private Payrolls (k)* Sep 83 165
8:30 Unemployment rate mm (%)* Sep 4.4 4.4
8:30 Average earnings mm (%) Sep 0.3 0.1
10:00 Wholesale inventories mm (%) Aug 1.0 1

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