MBS Recover, Turning Positive Following NFP Sell-Off


From MBS Live this AM: MBS Tank and Recover Following NFP. Knee-Jerk Still Playing Out 9:14AM

Current trading levels in MBS and TSYs are encouraging. Both began the New York session weaker after a fairly uneventful overnight session. The fact that all the news snippets out of the EU weren’t big market movers left the door open for this AM’s NFP to retain any significance it was going to have. 

In that regard, NFP has proven to be moderately significant, garnering plenty of volume and volatility after the release showed 80k new non-farm payrolls. Although this was lower than the expected 95k, there were appreciable revisions to the past 2 releases, painting an overall picture of job growth as “lackluster, but at least positive” as opposed to “at risk of turning negative.” Bond markets sold off at a fairly healthy clip as markets digest the sizable revisions, but have since bounced back (stocks failed to break yesterday’s highs, at least as indicated by futures trading): 

Fannie 3.5’s currently up 4 ticks on the day at 101-29
10yr yields 1 bp lower at 2.062
SP futures down to 1246 after hitting 1256 after the NFP release


Those were the levels at 9:14am when the alert came out, but things have improved a bit more as those supportive trends took hold.  Here’s a recent shot of some of the live action on the MBS Dashboard:

The charts I put together earlier still give good context for those recent improvements.  The stock lever has been perfectly connected this morning and shortly after I grabbed the chart below, stocks began sliding, and 10yr yields followed lower, currently at 2.03.

This longer term chart of 10yr yields shows that the weakest (highest) yields this morning came close to testing the 38% retracement zone, but at this point we’re obviously well off those highs.  Unless something fairly major happens, it seems unlikely that we’d retest them today.

After an earlier sharp break immediatly following NFP, MBS rallied and fell back down exactly to 101-25 support.  A nice bounce there ultimately set the stage for the test of higher pivot points seen in the video chart at the top of the post.

With no further economic data today, we’re left at the mercy of the other major market mover: potential EU Headlines.  They’ve been light so far today and the Greek confidence vote currently isn’t expected until after hours.  So we may be faced with something of a sideways fizzle into the afterhours session.  A lot may depend on stocks, which are a bit of a double edged sword at the moment.  On the one hand, they seem to be encountering resistance, but on the other hand, they have certainly been ascribing more to a rallying path overall:

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