One of the best things to understand about the jobs report is that the payroll count can go BIG in either direction, regardless of what the other data or labor market trends have been suggesting. Today's data suggested a predictable level of labor market weakness. This isn't something that would guarantee a bond rally, but that's nonetheless what happened. Rather than think of this as a "lead-off" or bonds getting in position for a weaker NFP, it's more accurate to treat such moves as a simple circling of the wagons as traders exit previously held positions to get neutral ahead of a high risk event. The movement in the yield curve is a solid clue here as it had steepened to what are essentially the highest levels since early 2022 by Wednesday morning and has been correcting ever since (correcting = 10s and 30s doing better than 2s and 3s). All of this is much ado about nothing. The point is as boring as it is true: bonds can rally or sell on Friday at a pace that's only really limited by the size of the beat/miss in the data.
Limited reaction to ADP data, but no bad reaction. MBS up an eighth and 10yr down 3.6bps at 4.183
10:02 AM
Off best levels after ISM data. MBS up 3 ticks (.09) and 10yr down 2.4bps at 4.193
11:50 AM
Sideways drift continues. MBS up an eighth and 10yr down 2.8bps at 4.19
03:04 PM
Best levels of the day with MBS up 6 ticks (.19) and 10yr down 4.6bps at 4.171
Lock / Float Considerations
Any day with rates at longer-term lows (such as Thursday) is a compelling lock opportunity for risk-averse clients. The string of victories enjoyed by any risk-tolerant client that's been floating for more than a few days is also more compelling than normal considering the risks presented by the jobs report. As always, big moves in either direction are possible.
