This risk that today's session would bring a pre-NFP "lead off" in the event of stronger data is coming to nauseating fruition before our eyes. 10yr yields and MBS are well into their worst levels of the months-long sell-off, also the worst levels in over 2 years. The culprit (the lead-off) is a well-known player on NFP weeks and was doubly risky this time around. Yesterday morning
I said "with ADP teaming up with Jobless Claims and ISM Non-Manufacturing on Thursday, it would be a surprise not to see
a noticeable NFP lead-off take shape."
This, then, is the lead-off. It's really that simple. When rates trend in one direction heading into NFP and when the economic data on Wednesday and Thursday aligns with the move, price movements can jump the tracks from the previous trend into a more aggressive pattern of selling or buying. In this case, we were selling-off from late August strength. Data supported further selling. Market participants are defending against the prospect of a similarly strong NFP number, and the rest is history.
The majority of the trading day is over in terms of volume and participation, and the conclusion is that 10yr yields met support at 2.98 and Fannie 4.0s around 101-24. The afternoon could see additional movement in either direction, but the loudest voices have spoken.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing
is available via MBS Live.
Pricing as of 11:07 AM EST
Morning Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts
and updates issued via email and text alert to MBS Live subscribers
Negative Reprices Are a Constant Risk
Earlier lenders have already repriced negatively and constant pressure on bond markets keeps the risk of additional reprices on the table. 10's are pushing their high yields of the day at 2.981 and Fannie 4.0s are heading down into the 101-20's. 2nd round reprices will soon be a risk if we slide any further and almost every lender is at some risk of an initial negative reprice.
ECON: Factory Orders Fall Less Than Expected
- Factory Orders -2.4 vs -3.3 Forecast
- Reaction: This isn't the most consequential piece of economic data, but it rounds a morning of data that's been in line with, or much better than forecast. Bottom line, even if it's not hurting compared to ISM data, it's not helping either.
New orders for manufactured durable goods in July
decreased $17.8 billion or 7.3 percent to $226.6 billion,
the U.S. Census Bureau announced today. This
decrease, down following three consecutive monthly
increases and followed a 3.9 percent June increase.
Excluding transportation, new orders decreased 0.6
percent. Excluding defense, new orders decreased 6.7
Transportation equipment, also down following three
consecutive monthly increases, led the decrease, $16.7
billion or 19.4 percent to $69.7 billion. This was led by
nondefense aircraft and parts, which decreased $14.5
ECON: ISM Non-Manufacturing Highest Since 2005
- Non-manufacturing PMI (aka "NMI") 58.6 vs 55.0 forecast
- Prices Paid 53.4 vs 60.1 previously
- PMI highest since December 2005
- Market Reaction: More weakness for bond markets, but relatively contained at initial loss levels so far.
"The NMI™ registered 58.6 percent in August, 2.6 percentage points higher than the 56 percent registered in July. This indicates continued growth at a faster rate in the non-manufacturing sector. This month's NMI™ is the highest reading for the index since its inception in January 2008. The Non-Manufacturing Business Activity Index increased to 62.2 percent, which is 1.8 percentage points higher than the 60.4 percent reported in July, reflecting growth for the 49th consecutive month. The New Orders Index increased by 2.8 percentage points to 60.5 percent, and the Employment Index increased 3.8 percentage points to 57 percent, indicating growth in employment for the 13th consecutive month. The Prices Index decreased 6.7 percentage points to 53.4 percent, indicating prices increased at a significantly slower rate in August when compared to July. According to the NMI™, 16 non-manufacturing industries reported growth in August. The majority of respondents' comments continue to be mostly positive about business conditions and the direction of the overall economy."
Heads-Up: First Move is WEAKER Following Strong ISM Numbers`
New highs for 10yr yields--crested 2.971 momentarily. MBS don't have the liquidity to react as quickly, but should be dropping under 102-00. Lenders that weren't already defensively positioned with initial rate-sheets won't take much more weakness to consider negative reprices (but most were probably positioned pretty defensively if they were already out with rates. Compare AM sheets to yesterday's latest. If you're over 3/8ths worse, most of the defensiveness is baked in).
Range Fights For Survival After Data; ISM May Decide
Fannie 4.0s are fighting to hold on to the 102-00 support level that was briefly pieced just ahead of the 9:30am opening bell for stocks. We're currently back up to 102-04 and Treasuries have held their 3rd supportive ceiling of the morning around 2.95.
It's important to note that the initial rally that took place following ADP and Jobless Claims numbers (saw 10's move from 2.95 to 2.915, and Fannie 4.0s from 102 to 102-07) was not actually a rally, but very profitable short covering and consolidation after overnight weakness and bond-negative economic data.
Additionally, we should expect bigger-than-average swings in MBS to be the norm through tomorrow. At this point in the morning, bond markets are waiting for ISM Non-Manufacturing data before making their next noticeable move. It should be relatively well-contained in the big picture, but could push new price lows if the data is stronger-than expected.
ECON: Jobless Claims Lower Than Expected
- Claims 323k vs 330k forecast
- 4-wk average 328.5k vs 331.5k previously
- Continued Claims 2.951 mln vs 2.980 mln forecast
In the week ending August 31, the advance figure for seasonally adjusted initial claims was 323,000, a decrease of 9,000 from the previous week's revised figure of 332,000. The 4-week moving average was 328,500, a decrease of 3,000 from the previous week's revised average of 331,500.
The advance seasonally adjusted insured unemployment rate was 2.3 percent for the week ending August 24, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending August 24 was 2,951,000, a decrease of 43,000 from the preceding week's revised level of 2,994,000. The 4-week moving average was 2,979,500, a decrease of 18,000 from the preceding week's revised average of 2,997,500.
ECON: Productivity Higher, Costs Lower Than Expected
- Productivity +2.3 vs +1.5 Forecast
- Labor Costs +0.0 vs +0.8 Forecast
Nonfarm business sector labor productivity increased at a 2.3 percent
annual rate during the second quarter of 2013, the U.S. Bureau of Labor
Statistics reported today. The increase in productivity reflects increases
of 3.7 percent in output and 1.4 percent in hours worked. (All quarterly
percent changes in this release are seasonally adjusted annual rates.)
From the second quarter of 2012 to the second quarter of 2013,
productivity increased 0.3 percent as output and hours worked rose 2.1
percent and 1.7 percent, respectively.
Labor productivity, or output per hour, is calculated by dividing an index
of real output by an index of hours worked of all persons, including
employees, proprietors, and unpaid family workers. The measures released
today were based on more recent source data than were available for the
Unit labor costs in nonfarm businesses were unchanged in the second
quarter of 2013, as hourly compensation increased at the same 2.3 percent
rate as productivity. Unit labor costs rose 1.5 percent over the last four
BLS defines unit labor costs as the ratio of hourly compensation to labor
productivity; increases in hourly compensation tend to increase unit labor
costs and increases in output per hour tend to reduce them.
ECON: ADP Employment Roughly In Line With Expectations
- Private Payrolls +176k vs +180k Forecast
- July revised to 198k from 200k
- Market Reaction: just slightly stronger now, but still weaker than yesterday. The nearness to consensus puts a bit more emphasis on the rest of the morning's data.
Private sector employment increased by 176,000 jobs from July to August, according to the August ADP National Employment Report®. Broadly distributed to the public each month, free of charge, the ADP National Employment Report is produced by ADP®, a leading global provider of Human Capital Management (HCM) solutions, in collaboration with Moody’s Analytics. The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis. July’s job gain was revised down slightly from 200,000 to 198,000
Bonds Down Big, Even Before Data; Obvious Anxiety
Overnight sessions like the one we just had are uncommon, and speak to an almost unique type of anxiety for bond markets. The notion of "the week beginning today" is in full effect as Treasuries simply marched steadily into weaker territory despite cues from related markets.
There was little, if any of the customary influence from Yen, Nikkei, equities futures, bunds, etc, and volume was high will 10yr yields hit new multi-year highs. 10's are up to 2.945 right now. Fannie 4.0 MBS opened more than a quarter of a point lower and are at 102-04 currently.
We're in full defense mode against an ADP beat and counting on a miss in order to reenter yesterday's range.
Live Chat Featured Comments
James Anthony : "I agree with you Dan, the entire process is now a sale. "
Dan Clifton : "what I mean by this sucks, is I am tired of getting a client, quoting a rate, and 10 minutes later the rate is no good. Clients think you are trying to pull something over on them. I would rather be at 5.5% and be there vs higher every bloody 15 minutes"
Ira Selwin : "REPRICE: 10:38 AM - BB&T Worse"
JRS : "REPRICE: 10:36 AM - Suntrust Worse"
Matthew Graham : "RTRS- ISM REPORT ON U.S. NON-MANUFACTURING SECTOR SHOWS PMI AT 58.6 IN AUGUST (CONSENSUS 55.0) VS 56.0 IN JULY "
Matthew Graham : "Michael: "It's important to note that the initial rally that took place following ADP and Jobless Claims numbers (saw 10's move from 2.95 to 2.915, and Fannie 4.0s from 102 to 102-07) was not actually a rally, but very profitable short covering and consolidation after overnight weakness and bond-negative economic data.""
michael kirsch : "I'm sure this was already asked, but why did bonds sell off, with lower than expected jobs data"
Matthew Graham : "CK, I really think it's pretty clear. If payrolls stay around 200k after a $12.14 bln taper, there will be another $12.14 bln taper next meeting (on average) until we hit $0. "
Chris Kopec : "What concerns me is that this taper speculation is going to hover over the bond market like El Nino until the Summer of 2014."
Matthew Graham : "10am data is relevant though. It can have a 'course correction" impact"
Jason Anker : "the market knows I need to lock"
Oliver Orlicki : "today is meaningless."
Matthew Graham : "Didn't miss anything. It's not a big sell-off. This is the sort of volatility you should expect as a baseline for the next 30 hours"
Chris Kopec : "Interesting Gallup info in the newstream.....seems to paint a less rosy picture on UE"
Andy Pada : "10:00 am data significant?"
William Hansen : "Did I miss something in the last 5 minutes?"
Matthew Graham : "RTRS- U.S. Q2 NON-FARM UNIT LABOR COSTS REVISED TO UNCHANGED (CONSENSUS +0.8 PCT) FROM PREV +1.4 PCT "
Victor Burek : "big miss on labor costs...so no wage based inflation"
Matthew Graham : "RTRS- U.S. Q2 NON-FARM PRODUCTIVITY REVISED TO +2.3 PCT (CONSENSUS +1.5 PCT) FROM PREV +0.9 PCT "
Matthew Graham : "RTRS- US JOBLESS CLAIMS FELL TO 323,000 AUG 31 WEEK (CONSENSUS 330,000) FROM 332,000 PRIOR WEEK (PREVIOUS 331,000) "
Matthew Graham : "interesting read Tuesday night that came out at just the wrong time to get noticed and discussed by most of us: http://www.theatlantic.com/business/archive/2013/09/the-myth-of-part-time-america/279300/"
Erik Grimmer : "This whole market is a joke. Markets are manipulated by bs data and it doesn't really seem to matter. We show a drop in jobs from last month, yet bonds are down after the announcement too. Just taper already so the speculation can end"
Victor Burek : "but it doesn't make a lot of sense to me mg2..the nfp report has shown 70% of all jobs created are part time this year...not sure why avg work week has held...might be due to the adjustments the BLS uses"
Victor Burek : "http://www.challengergray.com/press/PressRelease.aspx?PressUid=285"
joon choi : "challenger report anyone?"
Matthew Graham : "RTRS- US ADP JULY PAYROLL CHANGE REVISED TO 198,000 FROM +200,000 "
Matthew Graham : "RTRS- REUTERS CONSENSUS FORECAST FOR ADP PAYROLL CHANGE FOR AUG WAS FOR INCREASE OF 180,000 JOBS "
Matthew Graham : "RTRS- ADP NATIONAL EMPLOYMENT REPORT SHOWS U.S. EMPLOYMENT INCREASED BY 176,000 PRIVATE SECTOR JOBS IN AUGUST "
Dan Clifton : "I think the only thing that will help mbs at this point is a negative adp, and by negative I mean a number less than zero"
Jeff Anderson : "So just getting defensive?"
John Tassios : "Looks like the big selloff prior to ADP and NFP"
Jeff Anderson : "GM, all. So today looks like a good start. What's the catalyst? The G-20 meeting? Japan leaving things as is?"