Rates Give Up After Briefly Trying to Hold Yesterday's Ceiling

There really weren't any new reasons for the bond market to abandon all hope and sell off to even higher yields today, but they found some nonetheless.  One of the only valid considerations was the active trading of the yield curve which is currently seeing the front end of the market price out any major risk of a 75bp hike in June.  At the same time, the Fed confirmed the normalization timeline and amounts this week (which speaks more to longer-term debt). One of the ways markets trade this general long vs short battle is via curve trades (buy 2s, sell 10s or sell 2s, sell more 10s).  Case in point, 2yr yields outperformed 10s massively today, with the most epic glut of 2yr buying seen right at 9:30am.  This suggests that traders were lined up to make these trades regardless of any of the data or events on today's calendar.

Econ Data / Events

  • Fed MBS Buying 10am, 11:30am, 1pm

  • Nonfarm Payrolls .......428k vs 391k f'cast, 428k prev
    Unemployment Rate ...3.6 vs 3.5 f'cast, 3.6 prev
    Participation Rate .......62.2 vs 62.4 prev
    Wages ......................03 vs 0.4 f'cast, .5 prev

Market Movement Recap
08:46 AM

Initially stronger after jobs report, but now giving up gains and in line with opening levels.  10yr up 5bps at 3.058.  MBS down a quarter of a point.

09:20 AM

MBS have joined Treasuries to a greater extent in the post-NFP deterioration.  4.0 coupons now down 14 ticks (.44).  10s are up 9.4bps at new highs of 3.127

02:03 PM

Decent recovery followed by two-way trading through 1pm, but weaker since then, especially in the past half hour.  MBS down 10 ticks (.31) and roughly a quarter of a point below intraday highs.  10yr yield up 8.2bps at 3.116.

04:51 PM

Bonds completely giving up hope now, but that could be as much a reflection of Friday afternoon liquidity conditions as anything.  MBS down more than half a point.  10s up more than 10 bps at new highs of 3.14+.