The extent to which bond markets have been able to maintain a narrow range since the previous INFP has been nothing short of impressive. Certainly, no such stretches of time have been so well-contained since before the “new era” began last summer. There have been a few opportunities over the past 28 days for MBS and Treasuries to make noticeable departures from their ranges, but when even the FOMC events of 4/25 failed at that challenge, the focus shifted decidedly on Today’s NFP.
Last month came in at 120k and economists/analysts surveyed by Reuters are forecasting today’s figure at 170k. The collection of employment data from various economic reports and statistics over the past few weeks is fairly balanced, suggesting an “on target” NFP.
That said, it’s mostly the constituent pieces of manufacturing reports that have been better while the broader Jobless Claims (not yesterday’s, but the numbers from the same week as the NFP survey), ADP, Challenger Layoffs, and ISM Non-Manufacturing all point to a weaker-than-expected reading today.
The forecasts range from 105k to 210k, but there’s a bit of “safety in the herd” mentality in play here. For instance, if for some reason, we thought NFP was going to come in at 75k but could see that the rest of the herd was congregated between 104-210k, we might not want to appear to be straying too far from that. Such wandering animals are usually the first to get eaten. As you can see in the chart below a print of 250k or 75k would look perfectly acceptable in the context of the recent range.
Whatever the case, we’ll find out shortly. We’ll also find out if this, then, is FINALLY “the thing” that delivers the guidance needed to either push bond markets into decidedly stronger or weaker territory. If we get a big enough miss and some follow through next week, that could sow the seeds for increased QE3 expectations, and potentially a more active/liquid market for lower MBS Coupons.
A big beat on today’s NFP has more to prove though. It would do some significant damage to be sure, but such major pivot points as, say, 2.04 and 2.07% in 10yr yields feel almost “safe” from the current perch at 1.93%. Visits to such levels would require an immensely better-than-expected headline NFP, and those levels are two of the boundaries of the long-standing range beginning in November.