MBS Pricing Snapshot

Perhaps at another point in time with job creation running over 200k per month and a Non-Farm Payrolls forecast that was significantly higher than the previous one, could we see a 10k miss of the consensus as a bond market cue that could be traded in either direction. But today's 10k miss for NFP (+80k vs +90k consensus... not to mention the many revisions higher after y'day's ADP report) is disappointing weakness. Even if only marginal, this sort of weakness is the last thing that markets want to see at the moment, and the level of tolerance for such things is lower all the time.

And so it is that we're seeing the mere 10k miss translate into further gains from y'day's already strong levels. 10yr yields have been testing a break below 1.56 resistance on the downside and Fannie 3.0's are up 9 ticks at an all-time high of 103-06. Fannie 3.5's are also at all time highs, up 7 ticks to 105-23. S&P futures are down just over 10 pts.

Despite the all-time highs for MBS and the intermediate lows for Treasuries, we're still seeing lots of evidence suggesting that the current sideways range will be a force to contend with. This doesn't necessarily mean that hard and fast technical boundaries will never be broken, but simply that bond markets are firmly predisposed to not stray far from the 1.68 to 1.56 range. Even below 1.56, there are additional resistance targets at 1.533, 1.483, and 1.44. 1.56 has simply been the most prevalent resistance since early June.

* NFP +80k vs +90k Consensus
* Last month revised higher from +69 to +77k
* U/E unch'd at 8.2%, participation rate unch'd at 63.8
* Comment, many firms rushed to revise forecasts higher after yesterday's ADP beat, but it turned out to be another head fake. The fact that we're not seeing an immediate push down below 1.56 in 10yr yields is a testament to how badly the sideways range wants to hold, but we're not yet sure if this may be the report that finally "does the trick" as far as flipping the switch for QE3 expectations.

Nonfarm payroll employment continued to edge up in June (+80,000), and the unemployment rate was unchanged at 8.2 percent, the U.S. Bureau of Labor Statistics reported today. Professional and business services added jobs, and employment in other major industries changed little over the month.

Total nonfarm payroll employment continued to edge up in June (+80,000). In the second quarter, employment growth averaged 75,000 per month, compared with an average monthly gain of 226,000 for the first quarter of the year. Slower job growth in the second quarter occurred in most major industries.

The average workweek for all employees on private nonfarm payrolls edged up by 0.1 hour to 34.5 hours in June. The manufacturing workweek edged up by 0.1 hour to 40.7 hours, and factory overtime was 3.3 hours for the fifth consecutive month. The average workweek for production and nonsupervisory employees on private nonfarm payrolls edged up by 0.1 hour to 33.8 hours. (See tables B-2 and B-7.)

In June, average hourly earnings for all employees on private nonfarm payrolls increased by 6 cents to $23.50. Over the year, average hourly earnings have increased by 2.0 percent. In June, average hourly earnings of private-sector production and nonsupervisory employees increased by 5 cents to $19.74. (See tables B-3 and B-8.)

The change in total nonfarm payroll employment for April was revised from +77,000 to +68,000, and the change for May was revised from +69,000 to +77,000.