MBS Pricing Snapshot

Forget anything to do with the uninspiring overnight session as the morning has indeed been all about NFP, as well it should be. Nonfarm payrolls themselves, were in line with expectations, rising 114k in Septembers vs a 113k Consensus. Based solely on those figures, bond markets shouldn't be tanking, but other aspects of the report were disconcerting.

The one that will get the most press (and the most cries of "conspiracy!" is the unexpected drop to 7.8 pct for the unemployment rate vs 8.1% forecasts. Providing even less ammo to the traditional tactics used to discredit unemployment rate decreases, the Labor Force Participation Rate (LFPR) actually moved HIGHER from 63.5 to 63.6.

Typically, a drop in the unemployment rate can be "explained away" by a decrease in the LFPR, but in the case of today's drop, the culprit is simply a strong household survey. Keep in mind that the jobs report is comprised of two surveys: one for businesses (establishment survey) and one for households (household survey). While the headline NFP is calculated from the establishment survey, the Unemployment Rates is calculated based on the Household Survey.

The bigger problems for bond markets this morning are the huge upward revisions to the previous two reports, from 141k to 181k in July and 96k to 142k in August. Recalling the positive bond market reactions to those previous reports, we're left to wonder how things would have been different if we could go back in time using those higher revisions as the actual headlines.

It's impossible to say exactly how things would have panned out, but certainly the rallies wouldn't have been as pronounced. This morning's selling is really the best time machine we have for such things--effectively giving us a glimpse at how things might have been.

While MBS are faring better than Treasuries at the moment, both have taken a hit. Fannie 3.0s are down 6-7 ticks at the moment at 105-05, and earlier bounced at 104-31. There's been a ton of grinding just over 105-04 since about 15 minutes after the report, so we'd continue to watch that as a technical line in the sand.

Meanwhile, Treasuries just continue leaking slightly higher after an initial pop higher of roughly 4.5 bps in the immediate wake of the report. 10 yr yields are up more than 5 bps on the day currently at 1.727. Both sides of the market look to be TRYING to hold their ground with MBS doing a better job of that for now.

- Headline Payrolls +114 vs +113k consensus
- Unemployment Rate 7.8 pct vs 8.2 pct forecast
- Both of the last two months were revised significantly higher

Total nonfarm payroll employment increased by 114,000 in September. In 2012, employment growth has averaged 146,000 per month, compared with an average monthly gain of 153,000 in 2011. In September, employment rose in health care and in transportation and warehousing.

The average workweek for all employees on private nonfarm payrolls edged up by 0.1 hour to 34.5 hours in September. The manufacturing workweek edged up by 0.1 hour to 40.6 hours, and factory overtime was unchanged at 3.2 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls was unchanged at 33.7 hours.

In September, average hourly earnings for all employees on private nonfarm payrolls rose by 7 cents to $23.58. Over the past 12 months, average hourly earnings have risen by 1.8 percent. In September, average hourly earnings of private-sector production and nonsupervisory employees increased by 5 cents to $19.81.

The change in total nonfarm payroll employment for July was revised from +141,000 to +181,000, and the change for August was revised from +96,000 to +142,000.