One of the most notable themes of the past year is the relative unwillingness on the part of the bond market to make a big fuss over individual economic reports.  The explanation is that the data will ultimately follow the course of the pandemic and that the more important data would be that which came into focus as case counts fall in response to vaccinations.  We've arguably (hopefully?) reached that point in the pandemic, and as of last week, we saw bonds react to the data in a more noticeable way.  If that's the case, and not just coincidence, this week has the potential to be very informative.

The biggest data point this week will be Friday's jobs report.  Many jobs reports have come and gone since the start of the pandemic only to have laughably small impacts on bonds.  Last month's was a notable exception.  The exceptionally strong report has an immediate and obvious effect, pushing yields from 1.67 to 1.73 in very short order.  With covid case counts falling since then and more of the country open for business, economists are expecting another huge number (988k vs 916k previously).  If that happens, it would add to the case against a friendly range breakout.  

But what is "the range" these days?  Easy one!  It's 1.53 to 1.76.  Everything since March 12th has happened inside that range.  Moreover, if we look back to the start of the pandemic, there was a period of indecision when bonds were "staging" for the next big move.  Either the covid threat was overblown and yields were going to bounce higher, or it was every bit as dire as it seemed and yields were soon to set all-time lows.  We all know how that story ended, but the point is that we're back inside that same range of indecision now.

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Given the progress against the pandemic, both in terms of case counts and economic data, it makes good sense for bonds to be in this range.  If the economy continues to heal at the current pace and if case counts continue to decline, it will makes sense for yields to--at the very least--challenge the upper boundary of the range (1.76%).  If we slide backwards for whatever reason, 1.53% could also be challenged.  

While the biggest to-do is Friday's jobs report, the rest of the week is not without merit.  ISM PMIs are always relevant and they show up on Monday and Wednesday.  ADP employment data also adds to the potential data impact mid-week as it can offer a sort of sneak peek at the jobs report (hit and miss, of course).  In addition to the data, Fed speakers will be back on the circuit after the blackout period leading into last week's Fed announcement (they don't give speeches in the week leading up to an announcement).  Lastly, corporate earnings and corporate bond issuance could also add to volatility throughout the week.

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
UMBS 2.5
103-24 : +0-00
10 YR
1.6280 : -0.0030
Pricing as of 5/3/21 9:50AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Monday, May 03
10:00 ISM Manufacturing PMI * Apr 65.0 64.7
10:00 ISM Mfg Prices Paid Apr 86.1 85.6
10:00 Construction spending (%) Mar 1.9 -0.8
Tuesday, May 04
8:30 International trade mm $ (bl) Mar -74.5 -71.1
9:45 ISM-New York index Apr 804.5
10:00 Factory orders mm (%) Mar 1.3 -0.8
Wednesday, May 05
7:00 MBA Purchase Index w/e 281.4
7:00 MBA Refi Index w/e 3185.3
8:15 ADP National Employment (k)* Apr 810 517
10:00 ISM N-Mfg PMI * Apr 64.3 63.7
10:00 ISM N-Mfg Bus Act * Apr 69.5 69.4
10:30 Crude Oil Inventory (ml) w/e 0.659 0.090
Thursday, May 06
7:30 Challenger layoffs (k) Apr 30.603
8:30 Labor Costs Preliminary (%) Q1 -1.0 6.0
8:30 Productivity Preliminary (%) Q1 4.3 -4.2
8:30 Jobless Claims (k) w/e 540 553
8:30 Continued Claims (ml) w/e 3.620 3.660
Friday, May 07
8:30 Average earnings mm (%) Apr 0.0 -0.1
8:30 Non-farm payrolls (k)* Apr 988 916
8:30 Unemployment rate mm (%)* Apr 5.8 6.0
10:00 Wholesale inventories mm (%) Mar 1.4 1.4
15:00 Consumer credit (bl) Mar 20.00 27.58