Surprisingly Resilient Despite Stronger NFP

Nonfarm Payrolls (NFP)--the headline component of the big jobs report came in higher than expected today.  Adding to the challenges for the bond market, the unemployment rate ticked down to 3.7% from 3.9% previously (also the forecast for today). Given the stakes, we wouldn't have been surprised to see a sharper spike in rates today.  Treasuries know... They spiked 8bps--not huge, but in the range of likely reactions based on the data.  So what's up with MBS only losing an eighth of a point?  It's not a duration issue (after all, 5yr Treasuries had a worse day than 10s).  One of the only ways to reconcile the outperformance is to consider apprehension ahead of next week's Treasury auction cycle.  Everything else that merits apprehension (like CPI and Fed Day) would apply to MBS as well as Treasuries.

Econ Data / Events
    • Nonfarm Payrolls
      • 199k vs 180k f'cast, 150k prev
    • Unemployment Rate
      • 3.7 vs 3.9 f'cast, 3.9 prev
    • Participation Rate 
      • up 0.1
    • Wages
      • 0.4 vs 0.3 f'cast, 0.2 prev
    • Consumer Sentiment
      • 69.4 vs 62.0 f'cast
    • 1yr inflation expectations
      • Down 1.4% (huge move)
    • 5yr inflation expectations
      • Down 0.4%
Market Movement Recap
08:39 AM

Modestly weaker before jobs data and much weaker after.  10s up 9.5bps at 4.243 and MBS down half a point.

10:59 AM

MBS off weakest levels, mostly due to improved liquidity, now down 9 ticks (.28) on the day.  10yr up 9.9bps at 4.247

12:03 PM

Back to weakest levels now with 10s up 11+ bps at 4.26.  MBS down roughly 3/8ths in 6.0 coupons and half a point in 5.5 coupons. 

02:29 PM

Back up to the best levels of the day now.  MBS down only an eighth.  10yr recovering as well, up 8.3bps at 4.231.

04:45 PM

MBS going out at highs, but not really higher than the last update (still down an eighth).  10yr also in similar territory, up 8bps at 4.228.

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