MBS Live Recap: Jobs Report and ISM Data Push Back, But Not Too Much

Bonds were stronger overnight, riding a wave of buying demand on the heels of yesterday's weak econ data and US/China trade deal uncertainty.  Some market participants were said to be looking for a looking for an NFP number that was even lower than the already low forecast of 89k.  While that didn't make much sense to me personally (in fact, I felt forecasts were overestimating the impact of the UAW strike), I'll never turn down a good bond rally.

NFP ended up doing what we feared it might by coming in at 128k vs the 89k forecast.  Internals were decent enough and bonds were suddenly tasked with the need to make a quick correction toward higher yields.  The correction lasted all of 8 minutes before yields began drifting back toward the pre-NFP lows.

By the time the 10am ISM Manufacturing data came out, bonds had erased most of the losses.  But ISM ended up coming in at levels that were NOT weak enough to keep the rally fires burning.  At 48.3, it may have fallen short of the 48.9 consensus, but it represented an improvement from the 47.3 previous reading.  Bonds took this as a reason to keep selling.  Stocks kept rallying.  Was this the end of this week's good times?  

Ultimately, yields found a ceiling after a perfectly acceptable amount of weakness before rallying again into the close.  At the end of the day,  10yr Treasuries were only up 2.7bps.  Fannie 3.0 MBS--better insulated from this Treasury volatility--were pretty close to unchanged.  Next week brings a Treasury auction cycle (which could explain some of the predisposition for bonds to sell-off this afternoon due to the implications of additional supply) as well as the NON-Manufacturing version of today's ISM Purchasing Managers Index.