We knew the onus was on weaker economic data to justify any decent drop in rates/yields and we know the first week of any given month has a high concentration of relevant reports and that today's slate is 2nd only to NFP day. Today's heavy hitters included ADP Employment and ISM Services. Both were weak--especially ADP. The employment component of the ISM report actually improved and that serves as a reminder that data doesn't always agree--especially if the sample size is a single month. If Friday's jobs report agrees with ADP, there's more room for improvement for rates. If NFP does like ISM's employment index and rises slightly from last month, bonds will likely have to give back some of today's gains. Future musings aside, it's nice to see the market is willing to do what it's supposed to do with this type of data.
stronger after ADP. MBS are up an eighth of a point and 10yr yields are down 4.6bps at 4.418.
10:37 AM
Additional gains after ISM data. MBS up 10 ticks (.31) and 10yr down 8.3bps at 4.383
03:07 PM
Giving up some ground but mostly sideways after additional gains. MBS up more than 3/8ths and 10yr down 10.3bps at 4.362
Lock / Float Considerations
Rates have managed to find support at recent high yields after spending most of May moving decisively higher. Prevailing momentum has been cautiously bullish since May 22nd, but was just as easy to view as "sideways" until Wednesday's ADP/ISM econ data rally. The playbook for rates is unchanged: it takes legitimately weaker econ data to justify additional gains. With that in mind, Friday's jobs report is still the main event. The market has likely taken a bit of a lead-off due to Wednesday's data, so a paradoxically high NFP number could hurt while a weaker report would have to be unequivocally so in order to keep the good times rolling for rates.
