In the same way that Doc Holiday said “that is a hell of a thing for you to say to me” in the Movie Tombstone, it’s a hell of a thing for me to say the impact of the jobs report was lost in the big picture on a day where MBS rallied a full point. This isn’t an attempt to be dismissive of strength that may well prove to have some staying power, but it IS a reminder that the negative volatility that preceded today makes today’s positive volatility a wash–not only in the bigger picture but even as recently as yesterday morning. Not only are we back in line with yesterday morning’s levels, but we’re not making any headway in the bigger picture. Here are a few ways of looking at that:
Admittedly the MBS chart is looking more promising than the Treasury chart, but the point is that both have merely returned to “something they were doing before.” For MBS, that’s struggling to break meaningfully above 104 in Fannie 4.0s (and the upcoming roll will make that harder) and for 10’s it’s the ongoing inability to get through the uptrend that began in May.
The hope was that a decently sized miss in today’s data would have thrust 10yr yields decidedly below the teal line in the chart above (also implying a similarly convincing break above 104-00 for Fannie 4.0s). Instead, we’re left with a jobs number that was just weak enough to cause just enough of a rally to create a 50/50 split in the consensus on Fed tapering between December and September (Reuters primary dealer survey). The neutral trading levels are simply reflections of this indecision with a shift toward December favoring the breakout we’re looking for and toward November favoring the holding of recently troublesome trends.