Things have been less than great for bond markets since May of 2013 when sentiment in the Fixed-Income sector seemed to turn on a dime.  In reality, the Fed had begun talking about tapering earlier in the year and Bernanke even gave it significant treatment in March (we broke it down in detail back in June).

The conclusion was that Bernanke's press conference was easy to dismiss.  If it meant anything at the time, markets didn't have the right kind of decoder ring to understand it.  The understanding grew exponentially in May, and the rest is history.

Now that we're past the point of economic data justifying Fed tapering, the obvious question is "what happens if we get bad data?"  Is Friday's jobs report bad enough to put tapering on hold? 

We're most likely to find that one bad jobs report means very little in the grand scheme of things and FOMC members have said as much.  Too, recall that the utterly deceptive 95k NFP private payrolls print that tricked markets into thinking Bernanke's March 20th comments were premature, ultimately was revised to 154k.   The following three reports printed at 176, 178, and 202k to boot!

Even if Friday's report is never revised higher, we know enough about what's important to the Fed to know one report won't make the difference.  If it's joined by 2 upcoming weeks of data that are decidedly awful, then another $10bln reduction in purchases becomes less of a certainty, and the depth of the correction in bond markets may reflect that. 

Thankfully, that means we can hope for some good old-fashioned correlation between important economic data and trading levels.  Left to their own devices, bond markets should be predisposed to carve out a wider sideways range.  It could be very wide, actually--to the point where the 'exploratory' move to the more favorable end looks like a rally.

In fairness, it would be a nice little rally, but if that happens, keep in mind that not only would we have a long way to go before challenging the longer-term uptrends, something would simply need to change about the economic landscape, and in a much bigger way than we've seen since mid 2010 (when private payrolls climbed into positive territory).

Longer Term Treasury/MBS Trends


MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
95-29 : +0-00
FNMA 3.5
100-08 : +0-00
FNMA 4.0
103-25 : +0-00
2 YR
0.3739 : -0.0551
10 YR
2.8579 : -0.1071
30 YR
3.8008 : -0.0722
Pricing as of 1/13/14 6:48AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Monday, Jan 13
14:00 Federal budget, $ (bl) Dec 44.0 -135.2
Tuesday, Jan 14
8:30 Import prices mm (%)* Dec 0.3 -0.6
8:30 Retail sales mm (%)* Dec 0.1 0.7
8:30 Export prices mm (%)* Dec 0.1 0.1
10:00 Business inventories mm (% ) Nov 0.3 0.7
Wednesday, Jan 15
7:00 Mortgage Market Index w/e 345.1
8:30 Producer prices mm (%)* Dec 0.4 -0.1
8:30 NY Fed manufacturing * Jan 4.00 0.98
Thursday, Jan 16
8:30 Core CPI mm, sa (%)* Dec 0.1 0.2
8:30 Initial Jobless Claims (k)* w/e 326 330
10:00 NAHB housing market indx * Jan 58 58
10:00 Philly Fed Business Index * Jan 8.7 7.0
Friday, Jan 17
8:30 Housing starts number mm (ml)* Dec 0.992 1.091
8:30 Building permits: number (ml)* Dec 1.010 1.017
9:15 Industrial output mm (%) Dec 0.3 1.1
9:15 Capacity utilization mm (%) Dec 79.1 79.0
9:55 U.Mich sentiment * Jan 83.5 82.5