MBS Pricing Snapshot

Not that it's much of a consolation, but Fannie 3.5s are back under the "1-16 down on the day" barrier, at least for the time being. They'd been down as much as 1-22 earlier. 10yr Treasuries are currently flirting with 2.70, up 19.5 bps on the day.

The bulk of the market-based reaction to the NFP number has come and gone with volumes returning to more normal levels and expected to continue slipping away in much the same way market participants will attempt to slip toward the exits. If 10's manage to bounce at 2.70 here (and it looks possible considering they're down to 2.688 in the last 20 seconds), it would go a long way toward suggesting that 2.72 (hit earlier) was the boundary left in place for thinly-staffed trade desks. A 20bp move in either direction was what we laid out earlier in the week with a more pronounced move possible when markets return full force next week.

There's not much else to say. Bond markets were likely to sell off on a big NFP beat, and so they are. Beyond simply watching and reacting to levels on an intraday basis, we'd also suggest not drawing any major conclusions from the price action here on out. The traders that are out of the office today (in some cases) are likely to have left boundaries for the traders that are here. That's not to say this is the case everywhere you look, but it is the case to a greater extent than normal.

In this sense, any given team of traders in bond markets is likely to have decided on the walls of the sandbox for price movement. Whoever is left in the office today is free to play in the sandbox as they see fit while respecting the walls as long as they're still here. 2.72 is certainly a possible high yield wall, but the other way to approach it would be for the vacationing senior trader to set the sell-off bar at a certain height, such as 2.67 (which was the previous high in 10s). In that sense, a failure to break back below 2.67 is an extra scary statement about how the sell-off could extent next week.

All that having been said, we'd hesitate to draw too many conclusions about how next week will shape up, and instead choose to focus on the fact that additional weakness is a possibility. This isn't a situation where we'd be comfortable floating over the weekend on a strong NFP print because strong NFP prints usually aren't carrying the same near term implications as this one.

- June Payrolls +195k vs +165k Consensus
- May Revised to 195k from 175k
- April Revised to 199k from 149k
- Participation Rates 63.5 vs 63.4 previously
- Private Payrolls 202k vs 175k Consensus
- Work-week 34.5 vs 34.5

- Market Reaction: MBS and Treasuries tanking. 10's down over a point. MBS down exactly a point, breaking below 100-00 just now. 10's up to 2.66

Total nonfarm payroll employment increased by 195,000 in June, and the unemployment rate was unchanged at 7.6 percent, the U.S. Bureau of Labor Statistics reported today. Employment rose in leisure and hospitality, professional and business services, retail trade, health care, and financial activities.

Both past months revised higher and headline beats 195k vs 165k Consensus. Tanking at the moment. More to follow...

The net effect of Thursday's session on US markets was moderate weakness in Treasury futures by the end of the day. Equities futures saw solid gains on the dovish policy statements from the ECB and BOE. Treasuries marched to the beat of their own drum ever since, moving only moderately higher to start the overnight session before getting progressively more defensive by the onset of the domestic session.

There is certainly something to be said for various "risk-on"-related developments that have occurred between now and Wednesday's early close. Portugal may be able to hold their government together. The ECB broke dovish ground in a commitment to low rates. Chinese money markets grew less panicky. Greece says it can still strike a deal with creditors, etc. None of that "stuff" is all too important in the grand scheme of things and merely provided a background distraction that helped US markets focus on something other than NFP over the past 4 days, for the 4 or 5 people who were actually in the office trading.

With respect to recent day over day price/yield changes, the fact that 10yr Treasuries are 6bps higher is pocket change (and mid-range for the past two weeks). MBS opened up at 100-16 in Fannie 3.5s and have since moved up to 100-21. Most of the weakness is simply pre-flight jitters for the two markets that stand the most risk of being affected by the NFP result. T-minus 7 minutes.