This morning’s trading–both before and after NFP came out–basically acted as additional time for debate. Both MBS and Treasuries bounced quickly, but symmetrically around yesterday’s closing levels before finally choosing a direction. Actually, the direction may have been chosen for them to some extent, as it was the stock market that made the first move.
To bonds’ credit, they didn’t lose their cool in the first hour and a half of trading as stocks moved higher. Once it became clear that equities were heading down and out, bonds finally followed. 10yr yields hit their lowest closing levels since late August. MBS haven’t bounced back quite as much relative to late-summertime levels, but they’re getting close.
NFP itself didn’t seem to matter much, although I suspect that would have been different if it was clearly much weaker or stronger. As it stands, the miss in the payroll count (155k vs 200k) was the only real gripe, and that’s not even a big miss by historical standards. With unemployment holding at a low 3.7%, and average hourly earnings holding 3.1% year-over-year, this wasn’t anywhere close to the confirmation of a major economic shift that some investors were worried about (or hoping for, in the case of interest rate bulls).
One step at a time from here on out as we see where 2018’s strongest bond market momentum takes us. Expect a token bounce soon–at least for one day. It’s what happens afterward that will be the most telling.