NFP missed the mark and bonds ultimately rallied today. This rally offers a solid chance for easing (either “today” or “soon” depending on your risk appetite) as we expect to be in this position again in the near future? What position is that? The market that markets are wondering if we have any economic data soon that will accelerate Fed talks about a throttling. Today’s job data says “not yet”. This is good for interest rates in the short term, but creates greater risks in the coming weeks (maybe days).

Economic data / events

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

  • Nonfarm Payrolls 559k vs 650k f’cast, 278k prev
    Unemployment rate 5.8 vs 5.9 f’cast
    Participation rate -0.1 (compensates for U / E decrease)

Summary of the market movement

8:36 am

A little weaker overnight and a little stronger after a lackluster NFP (initially!). VERY slight response relative to expectations. Now it’s turning negative again, with 10-year yields up 1 basis point at 1.635 and MBS again unchanged (down 2 ticks, or 0.06 from highs).

09:50 am

It’s safe to say that the market has (finally) decided that this morning’s NFP number isn’t big enough to warrant the recent surge in Fed taper talk fears. Both stocks and bonds are now improving in the typical, symmetrical pattern of the “friendly Fed” (Chart HERE). 10-year drop of 4 basis points at 1.584 and 2.0 UMBS by more than a quarter point at 101-01 (101.03).

2:01 pm

gradually weaker in the afternoon hours, with MBS performing slightly below average. 2.0 coupons are still at 101-01, but they were an eighth point higher at noon. The 10-year returns are as high as 1.564 after hitting just 1.557.