MBS Live Recap: Bonds Fail to Capitalize on Super Weak Jobs Report

Nonfarm Payrolls came in at 266k compared to a median forecast of 978k.  That's one of the biggest misses ever and it was no surprise to see bonds rally significantly in response. It was definitely a surprise to see how quickly and completely the rally was erased in subsequent hours.  There are several potential reasons for this.  Traders could simply be skeptical that the headline NFP number speaks to the labor market reality, or they could fear the Treasury issuance implication (i.e. weaker jobs = more stimulus = more Treasury issuance = higher rates).  Other considerations include next week's looming auction cycle and good, old-fashioned profit taking after a steadily bullish week for bonds, to name a few.

Econ Data / Events
  • Fed MBS Buying 10am, 1130am, 1pm

  • Nonfarm Payrolls 266 vs 978k f'cast
    unemployment rate 6.1 vs 5.8 f'cast

Market Movement Recap
08:42 AM

Big, logical rally after massive NFP miss (266k vs 978k f'cast).  A 0.7% increase in wages and the highest-ever avg hourly workweek suggests fewer people working more hours (i.e. actual NFP might be in the 600k-800k range if wages and workweek were at normal levels).  Still, bonds are happy.  10yr down 5+bps at 1.515.  2.0 MBS up more than a quarter point.

09:27 AM

Most of the post-NFP rally has evaporated in Treasuries (10yr now almost back to unchanged at 1.565).  MBS only an eighth of a point higher on the day.  

11:58 AM

post-NFP gains now fully reversed with both MBS and Treasuries at the weakest levels of the day. There are no data-driven reasons or news headlines behind the correction.  It's purely technical (i.e. a correction to a knee-jerk rally for a market that isn't yet ready to break below 1.53% in 10yr yields).  Currently at 1.57% in 10s

03:06 PM

Bonds have been flat at their weakest levels since the early PM hours.  No major drama other than the gradual reversal of morning gains.  10yr yields up almost 1bp at 1.577%.  2.5 UMBS up 2 ticks still (+0.06) at 104-02 (104.06).

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