Nonfarm payrolls were 266,000 compared to a median forecast of 978,000. This is one of the biggest failures of all time, and it was no surprise that bonds rallied sharply in response. It was definitely a surprise to see how quickly and completely the rally was erased in the hours that followed. There are several possible reasons for this. Traders may simply be skeptical that the NFP number headline matches the realities of the job market, or they may fear the impact of government bond issuance (i.e. weaker jobs = more incentives = more government bond issuance = higher interest rates). Other considerations include next week’s upcoming auction cycle and good old-fashioned profit-taking after a consistently bullish week for bonds, to name a few.

Econ data / events

  • Fed MBS purchase 10 a.m., 11:30 a.m., 1 p.m.

  • Nonfarm Payrolls 266 vs 978k f’cast
    Unemployment rate 6.1 vs 5.8 f’cast

Market Movement Review

8:42 am

Big, logical rally after a massive NFP miss (266k vs 978k f’cast). A 0.7% increase in wages and the highest average weekly work week ever suggests fewer people are working more hours (i.e., the actual NFP could be in the 600,000 to 800,000 range if the wages and workweek are normal) . Still, bonds are happy. 10 years down 5 + bps at 1.515. 2.0 MBS by more than a quarter point.

09:27 am

Most of the post-NFP rally has evaporated in government bonds (10 years now almost unchanged at 1.565). MBS only an eighth of a point higher during the day.

11:58 a.m.

Post NFP gains have now completely reversed in both MBS and Treasuries at the weakest levels of the day. There are no data-driven reasons or headlines behind the fix. It’s purely technical (i.e., a knee-jerk rally correction for a market not ready to break below 1.53% on 10-year returns). Currently at 1.57% in 10s

3:06 pm

Bonds were flat at their weakest level since the early PM hours. No great drama other than the gradual reversal of morning profits. 10 years equals almost 1 basis point at 1.577%. 2.5 UMBS to 2 ticks still (+0.06) at 104-02 (104.06).