MBS RECAP: It’s Bad, But It Could Have Been Worse

  • Jobs report was good, mostly (242k vs 190k forecast, but some internal weakness)
  • 10yr yields breaking 1.84 support is bad
  • 10yr yields holding under 1.88 by the close is less bad
  • Fannie 3.0s only losing an eighth of a point on the day is downright delightful (considering all of the above)

The overnight session saw zero movement in Treasuries.  This was notable considering German Bunds sold off enough that we should have seen some spillover.  That’s neither here nor there other than to say that European bond markets aren’t on the list of things helping US bond market resilience today.

Once the jobs numbers hit, bond markets immediately weakened.  10yr yields leapt from 1.835 to 1.885 and Fannie 3.0s shed a quarter point.  But there was an initial recovery early in the session as stocks and oil moved lower.  By 10am, most of the day’s volume was in for bond markets and the equities complex took over the job of setting the tone.  Oil and equities rallied off the lows, pulling bond yields up with them.

By lunch time, human traders were done for the day and trading levels fizzled sideways until the 2pm rise of the robots (increased prevalence of algorithm-driven trading between 2 and 4pm).  Right on cue, stocks and bond yields began dropping at 2pm.  It wasn’t especially exciting for bond markets, but MBS did manage to pick up just over an eighth of a point (Fannie 3.0s up from 101-30 to 102-03).

For the sake of discussion, there was some talk today about bond market resilience drawing on several weak internal components of the data.  Specifically, the decline in wages in conjunction with a shorter work-week was seen as a major counterpoint to the increase in the number of payrolls.  Cases can be made for positive internal components as well, and then counterpoints could be raised against those in turn.  Point being: it wasn’t a universally positive report.  The extent to which those caveats were truly behind some of the resilience is debatable.

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