MBS Live Day Ahead: Medium Strong Jobs Having Expected Effect

By: Matthew Graham •

My commentary took a bearish turn, essentially saying that bond markets had done what they could to price-in a poor NFP number and that anything outside a big miss would likely result in a push back into the recent range.  I attached yesterday's video as a refresher in case you missed it.  And here's yesterday's recap, which is essentially a perfect Day Ahead if you simply add the conclusion: "unfortunately, all this is happening this morning":

I hate to say anything bad about bond market gains.  Bond market gains are among a few of my favorite things, after all!  I also hope I'm wrong in thinking today's rally was "nice" enough to be questioned.  I spelled out the reasons for this in detail in today's MBS Live updates and the Huddle (MBS Live members be sure you're signed up to receive the Huddle at this link), which is a daily video update with bullet points on market movers, technical levels, and lock/float guidance.

In a nutshell, I'm wary about today's gains for the following reasons:

  • they occurred in lower volume
  • they continue to be driven by big tradeflows as opposed to big news/econ data
  • big news/econ data was generally passed over, as if markets were trying to get somewhere ahead of NFP
  • NFP is widely expected to be weaker than expected (hope that makes sense...)
  • the rally stopped out at the exact technical levels that we've been eyeing as a line in the sand, beyond which we'd consider bonds to have made a positive shift (2.21-2.22% in 10yr yields).

All of the above raises the risk that bond traders are in position for a weak NFP number and that they're ready to change things up and do some selling if the opportunity presents itself tomorrow.

Here's how the charts look so far today (note: these are new charts from the beta version of the next MBS Live.  They'll have reprice/technical levels that persist across all of the time intervals):

As for the data doing the damage, NFP came in at 209k vs 183k--not normally a big enough beat to cause the amount of damage we're seeing, but again, it probably wasn't ever going to take much this time around.