Friday 6/6/08 ........... Mixed Jobs Data, MBS barely improving

By: Matthew Graham •
In A Word:

MBS prices are up modestly after NFP pared fewer jobs than expected, yet unemployment was higher than expected.  There is a reasonable chance we will continue to improve today.

To Lock or Float?

We have quite a large gap to treasuries this morning and this will likely be a bad day for stocks.  So floating is in order until further notice

The Numbers:

 

6.0% FNMA OTR is up by 4/32nds

5.5 FNMA OTR up by 4/32nds

The News:

  • Non Farm Payrolls
    • expected at 60k loss
    • Actual Reading was a 49k loss
    • This alone would not be much help to the MBS market
  • Unemployment rate
    • rose to 5.5%, in it's biggest one month jump since 1980
    • 88% of the 8.5 Million unemployed folks, have been out of a job for 5 weeks or less.
    • Some analysts point out that this kind of rapidly decreasing employment is a sign of a deep recession to come.
  • Wholesale Inventories
    • Consensus : .5% rise
    • Actual: 1.3% rise
    • Result: no one seems to care.

On Tap For The Rest Of The Week:

Patiently awaiting Monday!

 Conclusion

Okay, it's nice to get a little bounce back from yesterday, but it is just that so far: little.  It's not a great sign that a DJIA that has shed 227 points we have only recaptured 4 ticks of our recent losses.  Either this is an indicator of a bad trend or it sets the stage for MBS to close the gap.  Earlier this year, when the Dow was at these levels, rates were significantly lower.  That is to be expected to some extent as fixed income would naturally be aggressively bought while the markets are in their first slide.  Now that traders feel the bottom has been found, they don't have to hold every last penny in the "safe money" jar.  With limited buying demand in the virtual MBS pit currently, combined with a 5 year note (that's right, I said 5 year note because prepayment speeds on MBS make them much more similar to 5 year notes than to 10 year notes currently) that is struggling to get off the ground, fixed income is going to need more convincing than a mere 200 point sell off in the dow.  That's not a good sign.  Unless we get a headline that drastically turns the tides, if stocks start to head back up past, oh say, negative 150, put your locking caps on.