MBS Pricing Snapshot

- Factory Orders +0.0 vs +0.4 forecast, +0.8 previously
- Market reaction: This is the less important of the two 10am data-sets, and being a November report, less timely than ISM Non Manufacturing. Strength in the ISM report is generally outweighing the weakness here in Factory orders, though the miss perhaps help to contain what otherwise might be a more pronounced move lower in price for bond markets.

New orders for manufactured goods in November, up four of the last five months, increased $0.2 billion to $477.6 billion, the U.S. Census Bureau reported today. This followed a 0.8 percent October increase. Excluding transportation, new orders increased 0.2 percent.

Shipments, up four of the last five months, increased $2.0 billion or 0.4 percent to $483.7 billion. This followed a 0.3 percent October increase.

Unfilled orders, up five of the last six months, increased $1.1 billion or 0.1 percent to $984.5 billion. This followed a 0.3 percent October increase. The unfilled orders-to-shipments ratio was 6.14, down from 6.23 in October.

Inventories, down two consecutive months, decreased slightly to $615.2 billion. This followed a slight October decrease. The inventories-to-shipments ratio was 1.27, down from 1.28 in October.

- PMI 56.1 vs 54.2 forecast
- Employment Index 56.3 vs 50.3 in November
- Business Activity 60.3 vs 60.0 forecast, down from 61.2 in November

The NMI™ registered 56.1 percent in December, 1.4 percentage points higher than the 54.7 percent registered in November. This indicates continued growth at a slightly faster rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 60.3 percent, which is 0.9 percentage point lower than the 61.2 percent reported in November, reflecting growth for the 41st consecutive month. The New Orders Index increased by 1.2 percentage points to 59.3 percent. The Employment Index increased by 6 percentage points to 56.3 percent, indicating growth in employment for the fifth consecutive month at a significantly faster rate. The Prices Index decreased 0.4 percentage point to 56.6 percent, indicating prices increased at a slightly slower rate in December when compared to November. According to the NMI™, 13 non-manufacturing industries reported growth in December. Respondents' comments remain mixed and are mostly positive about business conditions and the economy.

First of all, there's still hope. 10's and MBS are still grinding sideways and possibly slightly higher in price following NFP, and so far, supports have held at the lows. That said, things are still fairly ugly and ominous overall. Just as we haven't broken support, neither have we taken out any meaningful resistance. In fact, as of now, we're looking at an incredibly nasty inflection point bounce in 10yr yields between yesterday's high yields and this morning's lows--similar story for MBS which bottomed out around 103-31 yesterday and have gone no higher than 103-30 so far this morning. 10's inflection point is in the mid 1.91's.

Japan had been on New Years holiday break until last night. We'd hoped they'd come back in and be more supportive of recent weakness, but they simply got on board with the raining on bond markets' parade. Europe and London hurt even more, bringing 10yr yields all the way up to a staggering 1.97+.

We were already bouncing back some before NFP hit at 8:30am. There has been ample volatility following the as-expected release. It would have probably been more supportive if not for some strong-ish internals. Even so, as this update is being written, 10's and MBS are edging ever-closer to retesting the aforementioned inflection points after both gave us quite a scare moving to 1.962 and 103-18 respectively.

10's are now down to 1.929 and Fannie 3.0s up to their session highs at 103-30+, but it's hard to be overly optimistic. The overnight and morning price action thus far, is doing more to confirm a shift toward negative trends than a heroic romp back to stronger levels, despite the quantum of solace afforded by holding ground at AM lows and inching toward the inflection points. It's a long road ahead--uphill both way (in the snow maybe!)--if we're to meaningfully break back in to yesterday's ranges. Waiting and seeing... Not utterly defeated, but not overly hopeful.

- Payrolls 155k vs +150k Consensus
- Previous month revised up to 161k from 146k
- Unemployment Rate 7.8 pct vs 7.7 consensus
- Labor force participation rate unchanged
- work-week up .1 hrs, wages up .3 pct vs .2 consensus
- Market reaction has been volatility within a range thus far with both 10yr yields and MBS rallying initially, pulling back to earlier morning weak spots and now hopefully, maybe, kinda, sorta holding that ground and moving back off the lows.

Nonfarm payroll employment rose by 155,000 in December, and the unemployment rate was unchanged at 7.8 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in health care, food services and drinking places, construction, and manufacturing.