MBS Day Ahead: All Bets Off for NFP

With markets closed tomorrow, NFP (the nonfarm payrolls component of the employment situation report) arrives a day early today, and despite all the focus on Europe, it's still important!  Now, there's always some chance that a jobs report leaves us close to unchanged by the end of the day, but I'd be surprised to see that today.

Reason being: we're entering the final approach to a probably Fed rate hike in September.  Just yesterday, Vice-Chair Fischer reiterated that the Fed is in a hurry to hike, even before full employment and inflation targets have been reached, due to the lag in impact of monetary policy.  Translation: the Fed doesn't want to be behind the curve when it comes time to level off at cruising altitude. 

It would follow logically then, that any strong showing in key jobs data would only reinforce this sense of urgency.  From there, all we need to know is whether or not US bond markets are capable of caring about payrolls and Fed policy expectations even in the midst of major developments in Europe.  Indeed they are: