MBS RECAP: Jobs Report Delivers on Promise of Volatility; What's the Return Policy?

We've been tracking a package from the BLS and new it was getting close as of Wednesday morning's major focus on employment metrics.  Today we heard the proverbial "doorbell, thud, and rumble of the diesel engine restarting."  When we opened the package, it was basically a mix of water balloons, thumb tacks, and gremlins.  Not cool NFP...  Not cool at all.

As to whether or not we will be able to return this particular package, it really depends on Europe.  I know that sounds weird considering we've just experienced a lot of negativity due to domestic economic data and domestic monetary policy expectations, but it's not quite that simple.

Europe is like the current in our ocean, and domestic affairs are like the waves as far as bond markets are concerned at the moment.  The waves have been nasty lately.  What's really scary is that the current has died as of the beginning of February--that is to say the momentum toward lower rates in Europe paused. 

As we've discussed time and time again, whenever it looks like Europe might be putting in the big bounce, US rates markets reserve the right to freak out, because Europe is the biggest reason we're as low as we are, and perhaps the only reason that US rates had to chase an incessant rally in 2014.  Without that motivation, there's a lot of "unwinding" that would need to be done, and US rates markets would waste no time in doing that if they could be sure Europe had turned a corner.

The waves will be the waves, but I'm still more concerned with this slack current.  If it reverses, there will be no way to keep the gremlins from getting wet.