MBS Pricing Snapshot

Both data sets have had a salubrious effect for MBS and Treasuries so far this morning with the first leg down in yield following ADP Private payrolls now complemented by weaker ISM Services ("non-manufacturing") data. Between those two reports, the opening bell for stock markets was of minor benefit to bond markets as well, though the stock lever connectivity has been sketchy of late. So we'll focus on the reactions to the data.

This most recent gains took 10yr yields from 1.84 to 1.826 currently. We think we're seeing a shift in tradeflows that suggests real buying behind the gains (as opposed to short-covering). That suggests that this is more than a tactical move and that bond markets are indeed willing to challenge recent resistance if things go well in the coming hours and days, culminating with NFP Friday.

For their part, MBS are up 7 ticks on the day at 103-14 now. This isn't quite enough of a gap from the earliest rate sheets to be hoping for a positive reprice, but one 'price-leader' sort of lender might be close if we hold here or improve over the next few minutes.

There's no other scheduled data for the day and the only other relevant event is the scheduled Treasury purchase operation going on now in 6-7 year maturities. When that wraps up at 11:00am, we'll be curious to see if it reinforces resistance at these stretched boundaries in 10yr yields. A bounce back to slightly weaker territory is always a risk following daily Fed buying. If we avoid one today, it's another positive mark on the wall of the jail cell heling 10's between 1.83 and 1.87 this past week.

- PMI (or NMI™) 54.4 vs 55.8 consensus, 56.0 previously
- Business Activity 56.5 vs 56.9 consensus
- Employment 53.3 vs 57.2 in Feb, lowest since Nov
- PMI lowest since August

In March, the NMI™ registered 54.4 percent, indicating continued growth in the non-manufacturing sector for the 39th consecutive month. A reading above 50 percent indicates the non-manufacturing sector economy is generally expanding; below 50 percent indicates the non-manufacturing sector is generally contracting.

ISM's Non-Manufacturing Business Activity Index in March registered 56.5 percent, 0.4 percentage point lower than the 56.9 percent registered in February. Thirteen industries reported increased business activity, and four industries reported decreased activity for the month of March. Comments from respondents include: "Getting ready for higher business activity in coming months" and "Increased retail sales."

ISM's Non-Manufacturing New Orders Index grew in March for the 44th consecutive month. The index registered 54.6 percent, a decrease of 3.6 percentage points from the 58.2 percent reported in February. Comments from respondents include: "Higher demand" and "New product launch."

To speak of the overnight session as anything interesting or relevant would be to give it too much credit. Even though Italian credit spreads were on the move and Eurodollars somewhat volatile these past few days, Treasuries essentially disregarded the overnight gyrations and held EVEN FLATTER than they had during the domestic session. Considering our gripes about yesterday's flatness, that's saying something! 1.855 to 1.861 ALL NIGHT! Ranges that narrow are a rare occurrence indeed.

Domestic market participants began running yields higher at the open, ahead of ADP data. 1.861 quickly gave way to 1.871. Fannie 3.0's opened in line with yesterday's latest levels of 103-06, experiencing less volatility at the open than Treasury counterparts.

ADP printed quite a bit weaker than expected (158k vs 200k consensus) though the previous month was revised higher. Even so, it was enough to reverse the course of early Treasury selling, and get back to positive territory. 10's moved from 1.871 to 1.847 and MBS ratcheted up 2 ticks to 103-08.

So we're not stampeding toward breaks of recent resistance levels, but "the slide" has been more than arrested so far. ISM services data at 10am may help keep that progress going if the report is weaker or could help reinforce the generally resistant territory we've gotten into when 10yr yields have been in the 1.83's and 1.84's. Either way, the message remains mostly sideways and contained ahead of NFP.

- Private Payrolls 158k vs 200k Consensus
- lowest since October
- Previous month revised to 237k from 198k

– Private sector employment increased by 158,000 jobs from February to March, according to the March ADP National Employment Report, which is produced by ADP, a leading provider of human capital management solutions, in collaboration with Moody’s Analytics. The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis. Revisions to job gains in the two prior months were offsetting; February’s gain of 198,000 jobs was revised up by 39,000 to 237,000, and January’s 215,000 gain was revised down by 38,000 to 177,000.