MBS MID-DAY: Just Slightly Weaker as NFP Consolidation Begins

It's common to see a pre-NFP consolidation in bond markets.  This refers mainly to the Monday and Tuesday of NFP week, especially if the Monday is NOT the first trading day of the new month.  For this week, that leaves today as the only real "pre-NFP" day.  Incidentally, the clock starts tick on Wednesday due to the data that is typically released: ADP and ISM Non-Manufacturing.  These are two of the biggest market movers apart from NFP, and they frequently account for a pre-NFP "lead off."

Today's consolidation has been fairly tame so far, and arguably began yesterday afternoon after the bond rally had run its course by 12:30pm.  As we noted in the morning update on MBS Live, that bounce coincided with a sell-off in Oil running its course.  And that just happens to be one of the more correlated markets, but the underlying theme is that a broad momentum was moving 'away from risk,' and that momentum leveled-off yesterday afternoon. 

So far today, it hasn't done much to push back in the other direction.  Just as it can be argued that Treasuries hit a technical barrier around 2.14-2.15 yesterday, it could also be asserted that we're seeing good support so far this morning at 2.18-2.19 overhead.  Considering these were the "floor" levels in late July, there's a case to be made for technical support here.  As always, keep in mind that 'technical support' isn't a prediction about the future, but rather, a way to separate significant movement from randomness.  In other words, a break above 2.19--while only a 1-2bps move higher at this point, would be more significant than the move up from 2.14 to 2.17 seen so far today.