Bond markets saw a decent amount of strength in the afternoon.  It ultimately allowed 10yr yields and MBS to return to positive territory by the end of the day, although they'd be best-characterized as merely "unchanged."  Who knows where trading levels would have shaken out were it not for the significantly stronger ISM non-manufacturing data this morning.

ISM came in at the best levels since 2005, essentially matching the best-since-2004 performance of the "manufacturing" version of the same report on Monday.  Here too, the "prices paid" component was the highest in several years.  Why does that matter?  Simply because the Fed is desperately seeking inflation in order to justify its rate hike trajectory.  In fact, if inflation doesn't pick up in the coming months, the Fed may have to continue dialing back its anticipated rate hike pace.  

Bonds were in roughly unchanged territory ahead of the ISM data, and then moved quickly into weaker territory afterward. Even then, it's getting tempting to buy into what some of the bond bulls may be selling.  For a while now, our stance has been "the trend is unfriendly until it proves itself to be something else."  By returning to positive territory even after the ISM data, the new record highs in stocks, and in an afternoon that didn't benefit from the recently positive effects of European bond trading, we may be seeing some early signs of a trend reversal.  

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.5
103-06 : +0-01
10 YR
2.3229 : -0.0091
Pricing as of 10/4/17 5:18PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
10:04AM  :  ALERT ISSUED: Big Beat in ISM Services Data; Bonds Weakening Further
9:46AM  :  ALERT ISSUED: Bonds Drift Into Negative Territory; Negative Reprice Risk Considerations
8:25AM  :  Bonds Lose Some Gains After Expectedly Weak ADP Data

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Jason Anker  :  "devils advocate - that guides seems to allow you to use that gift money toward borrowers contribution only. I don't see that is says there is no need to source it and provide gift letter"
Sung Kim  :  "If the borrower receives a gift from a relative or domestic partner who has lived with the borrower for the last 12 months, or from a fiancé or fiancée, the gift is considered the borrower’s own funds and may be used to satisfy the minimum borrower contribution requirement as long as both individuals will use the home being purchased as their principal residence."
Matthew Graham  :  "with new bets led by Gundlach?"
Victor Burek  :  "the site that has odds for next fed chair, does show Kashkari rising to 2nd place behind Warsh"
Victor Burek  :  "Liesman: "administration source tells me that neelkashkari is not being considers for fed chair.""

Economic Calendar
Time Event Period Actual Forecast Prior
Wednesday, Oct 04
7:00 Mortgage Refinance Index w/e 1419.2 1445.6
7:00 MBA Purchase Index w/e 233.4 231
8:15 ADP National Employment (k)* Sep +135 125 237
10:00 ISM N-Mfg Bus Act * Sep 61.3 57.2 57.5
10:00 ISM N-Mfg PMI * Sep 59.8 55.5 55.3