MBS Live Recap: Stocks Surge and Bonds Stumble Ahead of NFP

Generally higher yields and tepid intraday performances are nothing new for bond markets over the past week and a half.  In some ways, today marked a mere continuation of that trend and even offered some silver linings.  In other ways, it kicked the weakness into a slightly higher gear ahead of tomorrow's jobs data.

In terms of silver linings, intraday yields managed to hold below the intraday highs seen on 3 other recent tradings sessions (beginning with September 28th).  That could be taken as evidence that bonds are consolidating and haven't really made up their mind.  Moreover, bonds have been able to do that even as stocks have embarked on a rather impressive run to new all-time highs, with today being the most impressive of the lot.

If you stop reading after the previous sentence, the outlook is fairly decent heading into tomorrow.  If you keep reading, you'll be forced to consider that today's closing yields were the highest since early July and that technical momentum indicators are fairly unified in conveying an absence of reversal cues.  In other words, bonds have quickly gotten comfortable with these new, higher levels.

Tomorrow's jobs data is decreasingly important in a world where the Fed is primarily looking for inflation (and where job growth and even wage growth have had a frustratingly tenuous relationship with inflation).  That doesn't mean the headline won't move markets (it usually does, simply because "big trades following NFP" is one of America's pastimes--at least for bond markets), simply that NFP isn't likely to serve as lasting source of inspiration.  

On a final, downbeat note, I would point out that there is asymmetric risk associated with this particular NFP because a weak reading can be explained away with Hurricane impacts whereas a big beat couldn't be anything but bad for bonds.  Granted, it COULD BE the case that traders are waiting for NFP before getting back into bonds simply for strategy purposes, but A) we won't know that until after the data tomorrow and B) it's not the kind of thing you want to bank on from a lock/float standpoint--at least not when yields just closed near 3-month highs.