The jobs report may have missed the mark in terms of payrolls, but average hourly earnings put in its 4th straight month holding 2.8% (y/y)  or higher.  Before these past 4 months, 2.8% was a unicorn we saw on only a few brief occasions before it ran back into the woods.  Bottom line: wage growth can't merely be eye-rolled away by econo-bears.  Believe me, I'd be the FIRST in line.  

4 months of 2.8%+ means the odds increase that inflation will run a bit hotter.  MBS Live hall-of-famer SK hit the nail on the head with this comment today:

2018-10-5 sk comment

Hear hear!  It is indeed striking that Powell's press conference comment (last week) about the Fed not seeing a risk of an upside inflation surprise was not only poorly translated by newswire writers, but also relied upon by traders as inspiration for a post-Fed bond rally. 

Powell was more than happy to set the record straight this week on Wednesday, when he gushed over the current state of the economy, even going so far as to say the business cycle can continue indefinitely, and that the next downturn wouldn't be too bad.  On the same day, the services sector saw its best report card (via ISM Non-manufacturing) since 1997, which had already gotten bonds thinking about whether or not last week's Powell comment was perhaps "not hawkish enough" on inflation risks.

Now I'm going to show you a chart with daily candlesticks of 10yr Treasury yields and you tell me if you think you can identify Wednesday.

2018-10-5 close

Spoiler alert: it was the gigantic one!

Today sucked too, obviously, and for essentially the same reason.  Simply put: these past 2 months of data finally put us in a situation where sane market participants (as opposed to just a few quacks who were WAY early) are within their rights to wonder if the Fed is behind the curve and if the economy actually could grow/inflate faster than expected.  That's a new one... and it's scary if you're longer-term interest rate.

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 4.5
102-12 : -0-07
10 YR
3.2328 : +0.0378
Pricing as of 10/5/18 8:47PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
11:58AM  :  ALERT ISSUED: Negative Reprices Becoming More Likely
10:41AM  :  ALERT ISSUED: Negative Reprice Risk Increasing
9:54AM  :  One Risk to Keep in Mind
8:35AM  :  NFP Mixed; Bonds Weakening Moderately

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Sung Kim  :  "it's like the market went from "phew, Fed has inflation covered" to "Fed better wake up and get it under control before it's too late""
Sung Kim  :  "it's just a question of how long you can hold out"
Sung Kim  :  "the risk/reward narrative has changed substantially jeff"
Jeff Nelson  :  "if someone has high enough risk tolerance to float through this they would also consider taking their downpayment to Vegas."
Sung Kim  :  "MG's alerts and such have been so dead on hindsight"
Victor Mendoza  :  "Yes, wrong timing but required. Everyone is betting we are going to bounce at SOME POINT!"
Matthew Graham  :  "VM, 9 times out of 10, you float here and are very happy. But 1 out of 10 times, you don't see today's rates again for months and months"
Sung Kim  :  "as MG said, the market is doing a wholesale reprice"
Victor Mendoza  :  "At this point, new loans closing 30+ days. Lock now or float? Survey says"
Oliver Orlicki  :  "MG, awesome huddle. Great to have your expertise during a week like this one. Like you said, name of the game is endurance."
Matthew Graham  :  "lots of things are wild cards. Heaven forbid the folks that have reaped the biggest benefits from the recover start paying their employees more and sharing the hoarded wealth they've been lucky enough to create. Then inflation is really screwed. Fortunately, I don't think human nature will allow for such a thing. Gotta keep the serfs serfing."

Economic Calendar
Time Event Period Actual Forecast Prior
Friday, Oct 05
8:30 Average earnings mm (%) Sep +0.3 0.3 0.4
8:30 Private Payrolls (k)* Sep +121 180 204
8:30 Non-farm payrolls (k)* Sep +134 185 201
8:30 Unemployment rate mm (%)* Sep 3.7 3.8 3.9