MBS Pricing Snapshot

On the off chance that a lender or two hadn't priced in sufficient 'panic room' in their first rate sheets, negative reprice risk was potentially already an issue. Fannie 3.5s were down another 6-8 ticks from previous lows, but have bounced back somewhat. They're close to previous lows, currently at 100-28.

10yr yields were pushing into the 'warning track' levels of the range. While 2.74 is the best fit for a range boundary at the 3pm close today, 10's had traded as high as 2.759 intraday on Oct 16 (before closing at 2.744). They hit 2.763 for a split second today, and are currently back down to 2.744.

If we hold here or better, then reprice risk is much less of an issue.

Normally, this morning update would include something about the overnight session and early morning trading motivations, but that's not necessary today. NFP crushed the forecast. Private Payrolls came in at 212k vs 125k forecast. The last two reports were both revised higher to the tune of 60k jobs total. Bond markets have sold off so much that the overnight session looks like a flat line by comparison.

Interestingly enough, in justifying the obsolescence of the overnight session, we've just covered all the relevant info this morning. Fannie 3.5s are currently just over a point lower at 101-01 (they'll roll tonight, so expect 100-20 to 100-24 on Tuesday morning, all things being equal).

10yr yields are 12bps higher at 2.7347--pretty darn close to the 2.74 range boundary we expected to see on a massive beat, and this was pretty close to massive.

Most strategic trading decisions have already been taken for the day, so if 2.74 were to break later in the day, there's a good chance it won't be as relevant as the fact that it held during the first hour of reaction. Similarly, if trading levels improve in the afternoon, we wouldn't be too excited about it.

- October NFP 204k vs 125k forecast
- Sep revised from 148k to 163k
- Aug revised from 193k to 238k
- Unemployment rate 7.3 vs 7.3 forecast
- participation rate 62.8 pct, lowest since 1978
- labor department says "no discernible impacts" from shutdown

- Market reaction: Not good for bond markets, not good at all... MBS are off a full point.

Total nonfarm payroll employment increased by 204,000 in October. Job growth averaged 190,000 per month over the prior 12 months. In October, job gains occurred in leisure and hospitality, retail trade, professional and technical services, manufacturing, and health care. Federal government employment continued to trend down. There were no discernible impacts of the partial federal government shutdown on the estimates of employment, hours, and earnings from the establishment survey.

Both the number of unemployed persons, at 11.3 million, and the unemployment rate, at 7.3 percent, changed little in October. Among the unemployed, however, the number who reported being on temporary layoff increased by 448,000. This figure includes furloughed federal employees who were classified as unemployed on temporary layoff under the definitions used in the household survey. (Estimates of the unemployed by reason, such as temporary layoff and job leavers, do not sum to the official seasonally adjusted measure of total unemployed because they are independently seasonally adjusted.)

In the establishment survey, businesses report the number of people who work or receive pay for any part of the pay period that includes the 12th of the month. Persons who work or receive pay for any part of the pay period are defined as employed. This method of classifying workers is the same in all industries, including the federal government. Federal employees on furlough during the partial federal government shutdown were still considered employed in the payroll survey because they worked or received pay for the pay period that included the 12th of the month.

No joke, More to follow...