MBS Live Day Ahead: Any Weakness After NFP Means a Showdown With 3-Year Highs

Bonds are right on the edge of the relative abyss.  If 10yr yields break much higher today, we'll be operating in territory not seen since early 2014.  Frustratingly, if bond yields break lower, we'll be right back in the position of wondering if they'll break higher again after next week's Fed announcement.  So even though some short term momentum metrics suggest we're technically "ready" for a bounce (i.e. we've strung together enough weak days that short-term momentum is "oversold"), it's hard to make a case for a meaningful bounce until we see what the Fed has to say next week.

As for today's NFP data, it's not likely to have a material impact on next week's Fed meeting.  It could come in significantly weaker and still not derail the impending rate hike.  Even then, we'd probably need to see more than one isolated flop in this data before the bigger picture looked gloomy enough for the Fed to have second thoughts about their longer-term rate hike trajectory.

The median forecast calls for 190k nonfarm payrolls today.  If you ask ADP, that should be easy, considering ADP hit 298k vs the exact same forecast.  

If there's a saving grace it's that quite a lot of next week's rate hike is priced in to markets--perhaps all of it.  From here, the reaction to NFP would be a function of its impact on the forward-looking rate hike expectations.  In other words, is NFP strong enough to suggest the Fed hikes even faster?  If it matches the strength of the ADP data, that's a definite possibility, but it would need to be well-rounded (strong "average earnings" without a drop in the average workweek).