MBS MID-DAY: Bond Markets Hit Hard by Stronger Jobs; Holding Ground Now

By: Matthew Graham •

Not only was this morning's employment data stronger than expected, but it would probably have been even stronger if not for the weather effect.  As preposterous as this sounds to those hoping for lower rates and fed up with what sounds like an "excuse" for recently lackluster data, there are some compelling reasons to give it some consideration.  I discussed those earlier this morning: Breaking Down Weather Implications in Stronger Employment Report.

Even before that, members of the MBS Live community were already discussing it in real time on the Dashboard, helping get to the heart of the complex underlying data. 

Matt Hodges, Charlottesville Sales Manager at Presidential Mortgage Group, noted "the extrapolation is that if so many people worked less than their projected number of hours during the payperiod including 2/12 (Eastern snow storm), then fewer jobs were counted by businesses, but will likely be counted in future months."

Beyond the immediate implications for today's payroll numbers, we discussed other data in the report that showed just how dramatic an effect the weather had on workers reporting reduced hours.   Sung Kim, an Originator at McLean Mortgage Corp, was able to quickly distill the following chart for the community, explaining why bond markets were suffering in the process: "6.8mm people blamed weather.  This validates it as a reason for Econ weakness and weather is transitory."

Bottom line: based on today's report, and the special questions regarding weather, NFP would have been even higher during a more average winter.  Naturally, bond markets didn't like that, although they've been holding their ground and bouncing back a bit since hitting their weakest levels earlier today. 

The stock market is helping in that regard.  S&P's sold off more than 15 points peak to trough.  That's a much sharper mover lower than the analogous move seen in Treasury yields, but if we just look at 9:30am forward, the direction of the movement is highly correlated:

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
FNMA 3.0
96-07 : -0-12
FNMA 3.5
100-18 : -0-10
FNMA 4.0
104-06 : -0-08
Treasuries
2 YR
0.3733 : +0.0283
10 YR
2.7934 : +0.0564
30 YR
3.7267 : +0.0407
Pricing as of 3/7/14 12:49PMEST
Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
9:41AM  :  What does all that "Weather Stuff" mean in the Payrolls Data?
8:51AM  :  The Weather was Such a Big Deal, BLS Spent a lot of Time Talking About it
8:32AM  :  ALERT ISSUED: NFP Stronger Than Forecast; Major Sell-off for Bond Markets
Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "RTRS - U.S. FEB NONFARM PAYROLLS +175,000 (CONSENSUS +149,000) VS JAN +129,000 (PREV +113,000), DEC +84,000 (PREV +75,000)"
Matthew Graham  :  "RTRS- U.S. FEB JOBLESS RATE 6.7 PCT (CONSENSUS 6.6 PCT) VS JAN 6.6 PCT (PREV 6.6 PCT)"
Matthew Graham  :  "RTRS- U.S. LABOR FORCE PARTICIPATION RATE 63.0 PCT IN FEB VS 63.0 PCT IN JAN"
benjamin levin  :  "what is so good about these numbers???"
Matthew Graham  :  "RTRS- US FEB PRIVATE SECTOR JOBS +162,000 (CONS +154,000), JAN +145,000 (PREV +142,000)"
Steve Stone  :  "the problem was we had a lot of peeps that thought it was going to be weak"
Dave Pressel  :  "i think the MBS loss gets cut at least in half once digested"
benjamin levin  :  "i still dont see what is s good about this???"
Matthew Graham  :  "BL, what's good--and "good" is relative---is that it breaks a potentially alarming trend of declining payroll growth in the short term"
Joseph Daquino  :  "Watching news and they said numbers would have been better if not for the weather...lol."
Andy Pada, Jr.  :  "MG, don't understand what those circled numbers mean?"
Sung Kim  :  "AP - 6.8mm people blamed weather"
Matt Hodges  :  "MG - the extrapolation is that if so many people worked less than their projected number of hours during the payperiod including 2/12 (Eastern snow storm), then fewer jobs were counted by businesses, but will likely be counted in future months?"
Sung Kim  :  "This validates it as a reason for Econ weakness and weather is transitory"
Matthew Graham  :  "wow, very nicely deduced Hodges... Yes, it's around 50k, implied"
Adam Quinones  :  "just wanted to high-five MG for his awesome find. he beat many street economists to the punch"
Ted Rood  :  "MG, your "what does it mean" is a masterpiece. Kudos to you!"
Gus Floropoulos  :  "reading ur report suggests perhaps that more jobs may have been created, correct?"
Hugh W. Page  :  "The co-branding piece is truly superb. "