MBS MID-DAY: Quietly Holding Solid Gains After Tepid Jobs Data

Bond markets came into the domestic session in markedly weaker territory, but not for any overt reason.  Yields merely drifted defensively higher ahead of jobs data--a fairly understandable move considering that a strong number stood a good chance to do some serious damage. 

Not only did the headline miss expectations  (223k vs 230k forecast), but the past 2 reports combined for 60k fewer jobs after revisions.  Perhaps an equal amount of bond market strength drew on the fact that wages were flat, despite forecasts for a 0.2 percent gain.  Last month's wage growth was also revised lower by 0.1 percent. 

Taken together, it was enough of an adjustment to the recent trend (in employment data) that traders actually adjusted their outlook on the Fed's rate hike timeline (via Fed Funds Futures trading at the CME).  While many still view September as the likely month for a first hike, the consensus shifted into 2016 this morning. 

Treasuries and MBS reacted favorably as well with 10's dropping from 2.47 to 2.37.  Because of overnight weakness, that's only a 4.5bp gain on the day despite the 10bp move between highs and lows.  Fannie 3.5 MBS are up roughly 3/8ths of a point at 102-24.  After the initial rally ran it's course, bonds have been flat despite more selling in stocks.