In a recent cordial exchange between one of our friendly neighborhood financial news anchors and a random talking-head, the anchor responded to the talking-head's assertion that the big picture hasn't changed on rates with something to the effect of the following:

"but yesterday the futures markets showed around a 30% chance that the fed would hike in June, but after today's NFP it's at 60%!  Doesn't that constitute a change in the big picture?"

I could almost hear the tacitly implied "Check Mate Dude!  I got you man!  I got you!  Hey guys!  Did you see that?!?!  I got him!" 

The whole experience was vaguely analogous to how we do our best to help you sort out the hype from the reality.  I'm sure that we haven't heard the last of this "drastic change" in Fed Funds futures..., and though it did change, to consider it "drastic" or even as speaking to some big picture sense that rates are going up any sooner than they otherwise would before NFP would be excessive.

The fact of the matter is that until Dubai and an approximately 2 week time frame of a bond rally and retracement that followed, the consensus had been for June for some time, and decidedly so.  Formal and informal surveys of traders and economists have shown June to be the consensus as well.  I get the sense that this same anchor would not speak about the 10yr tsy in the same way--in effect saying that there was a change to the big picture for 10yr rates owing to the NFP.  In fact, the case is much the opposite, just as it is for Fed Funds.

To the same extent that we look at the 10yr seeking neutrality at the most internal of all post-summer internal trends at 3.38 and then moving to the most frequently visited high yield range over the same time at 3.5, wouldn't it necessarily make sense that futures were only down at 30% to keep pace with the rest of the market?  Yes yes, I know that 10yr tsy's do not equal fed funds futures.  But the point is that most of the "flight to quality" trading metrics have moved in the same way over this period of time, and fed funds futures are simply another security in that group.  Perhaps the best question is "Why wouldn't futures follow the underlying sentiments of the rest of the fixed income market?"

Well, they would, they did, they are.  End of story.  It was a range, it looked like it was going to remain a range, it did, and it will be a range until it's not any more.  The charts back that up, so if you read MBS Morning, nothing has changed for the worse and all the technical levels we highlighted are holding. 

MBS and tsy's spoke for themselves, but a quick note on the stock chart below.  Earlier, stocks had been higher than the range they'd been in for several weeks, an almost perfect range with a lower end around 1100 and 80% of the rest of trading being capped by the highest daily closes around 1110.  With stocks as high as 1118 earlier, it looked as if that range might finally be broken with another annual high for the S&P.  And though the day is not over and it could still happen, fo now stocks are back below the 1110 area.  They have since rebounded off the 1100 resistance, but may well encounter the support level from the last few days just above 1106.

In futures, we've zoomed in to a tick view from the AM post's daily view in order to show the clearcut testing that went on with 119-00.  Bottom line, no pun intended, support held up...