MBS Day Ahead: Huge Jobs Report; Bonds Weaker, But Surprisingly Resilient to Start

Today began with Nonfarm Payrolls coming in at 379k vs 182k forecast.  Last month’s numbers were revised up to 166k from 49k.  The unemployment rate ticked down a hair without being offset by a drop in the labor force participation rate.  The hourly work-week returned to more normal levels after hitting a record high in the last report.  All of these factors speak to the reopening of various local economies (and the report itself confirmed a massive resurgence in leisure/hospitality/wait-staff).

Taken together with yesterday’s Powell speech (in which the Fed chair completely avoided throwing a bone to concerns over the recent rate spike), this could easily add to the case for even higher rates than we’ve already seen.  In fact, it did just that at first.  Previous highs of 1.614% in 10yr yields gave way to fresh highs of 1.626% this morning. 

There are 2 ways to look at 1.626%.  The first is that it represented a swift sell-off from yesterday’s yield plateau at 1.55%.  The other is that it’s basically just another bounce at the 1.62% technical ceiling (we can certainly give yields a basis point or even 2 bps of grace when operating near long-term technical levels.  With yields already back down to 1.57% as of this writing, there’s definitely a chance for 1.62% to continue to hold despite the negative cues in the long-term trends.

The most alarming negative cue at the moment is the fact that today is set to close above the most recent trend channel (yellow lines below), which is an acceleration from the previous trend channel.

20210305 Open1.png

20210305 open2.png

If that happens (or really, whenever yields move above 1.62), what is the next technical level to watch and how do we identify it?  1.672 is the easiest level to identify based on an “opening gap” back in Feb 2020 (yields opened much lower than they closed in the previous session… an event that technicians view as significant) as well as several big bounces both before and after. 

20210305 open3.png


MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

MBS

UMBS 2.5

103-08 : +0-00

Treasuries

10 YR

1.5610 : +0.0110

Pricing as of 3/5/21 10:28AMEST

Tomorrow’s Economic Calendar

Time Event Period Forecast Prior
Friday, Mar 05
8:30 Non-farm payrolls (k)* Feb 182 166
8:30 Unemployment rate mm (%)* Feb 6.3 6.3
8:30 International trade mm $ (bl) Jan -67.5 -66.6
15:00 Consumer credit (bl) Jan 12.00 9.73

By Matthew Graham , dated 2021-03-05 10:30:48

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Courtesy of Mortgage News Daily

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