MBS Pricing Snapshot

* Non-Manufacturing index 52.6 vs 52.0 consensus
* Business Activity 57.2 vs 52.1 consensus
* Employment index 49.3 vs 52.3 previously

The NMI registered 52.6 percent in July, 0.5 percentage point higher than the 52.1 percent registered in June. This indicates continued growth this month at a slighter faster rate in the non-manufacturing sector.

The Non-Manufacturing Business Activity Index registered 57.2 percent, which is 5.5 percentage points higher than the 51.7 percent reported in June, reflecting growth for the 36th consecutive month.

The New Orders Index increased by 1 percentage point to 54.3 percent. The Employment Index decreased by 3 percentage points to 49.3 percent, indicating contraction in employment for the first time since December 2011.

The Prices Index increased 6 percentage points to 54.9 percent, indicating higher month-over-month prices when compared to June. According to the NMI, 11 non-manufacturing industries reported growth in July. Respondents' comments are mixed and vary by industry and company.

As would be expected when Non-farm Payrolls print 163k vs a consensus of 100k, MBS and Treasuries are in weaker territory. And while it's perfectly possible that they could move to even weaker levels ere the day is done, they've been surprisingly resilient thus far.

Fannie 3.0s for instance, though 12 ticks down on the day to 103-19, have definitely been trying to hold their ground around those levels, which are also in line with yesterday morning's lows. Similarly, 10yr yields have been grinding sideways around 1.55, despite moving 5-6bps weaker in the immediate wake of the data.

It's too soon to say definitively that this support at the lows (lows in price, highs in yields) will be an ongoing phenomenon or merely a temporary point of consolidation before another move weaker. In The Day Ahead post we suggested that there was little today's NFP could do, short of a massive deviation from expectations that would fundamentally alter the outlook. We threw out numbers of +200k on the upside and a negative NFP on the downside as benchmarks for those extremes. So far today, the +163k is actually doing about what we expected, which is to say, it's causing an expected amount of weakness in bond markets, but hasn't sparked a runaway sell-off.

Even then, we may have to wait until much later in the day and even into next week before we will see the extent to which markets shrug this off in favor of the prevailing low, sideways, apathetic rate range. May it won't be shrugged off, but as long as 10's and MBS are trading in slightly better territory than their weaker moments of the past 5 trading days, we can't really say anything "new" is happening. Just volatility inside the range.

- NFP +164k vs +100k consensus, 64k previous
- Private Payrolls +172k vs +110k consensus
- Unemployment 8.3% vs 8.2% consensus and previous
- Labor dept. cites fewer than normal layoffs in Auto sector

Total nonfarm payroll employment rose by 163,000 in July. Since the beginning of this year, employment growth has averaged 151,000 per month, about the same as the average monthly gain of 153,000 in 2011. In July, employment rose in professional and business services, food services and drinking places, and manufacturing.