This is Matt Graham with the MBS Live Market Update last week was a decent one for the bond market. Despite selling on a Friday after the jobs report, the week began in a pretty uneventful way and things got moving in a friendly direction on Tuesday, largely after the jolts. data. That’s job openings and labor turnover survey while the quits rate managed to increase, which is typically a bad thing for rates, the job openings rate declined to 7.6 million versus an 8 million forecast. Not the lowest it’s been in the past several months, but pretty close and a big miss. That got the market a little bit worried about the tenor of economic data even though that particular report doesn’t coincide with the jobs report that follows several days later. The only other big ticket report between those two was the ISM non manufacturing data on Wednesday morning. It came in at 52.8 versus a 54.3 forecast, modestly weaker, but not necessarily indicating economic contraction and the price component fell to 60.4 from 64.4. This is one of the week’s most important economic reports and always a heavy hitter after the week’s biggest heavy hitter, which is the jobs report on Friday. This kept the rally going and resulted in bonds moving to their lowest yields of the week. From there, Thursday ended up being a bit of a consolidation day. With the trading range falling completely inside Wednesday’s range and then Friday saw yields rise as bonds sold off in response to the jobs report. That was potentially an interesting turn of events. If you’re looking at the data, because nonfarm payrolls came in at 143,000 versus 170K forecast. That fact in and of itself would typically result in bonds rallying. But there were all too many yeah, buts in the data first off the size of that miss was completely offset More than offset by revisions to the past two months in other words the revision to the previous two months added many more jobs to the overall count than the deficit between the headline announcement and the forecast the unemployment rate also dropped to 4 percent and From 4.1, that was below a forecast of 4.1, and it was actually even stronger than that by the time we consider the participation rate moving up a tenth of a percent. Anytime the participation rate moves up, it implies the unemployment rate moving up, all other things being equal. So if the unemployment rate moves down, 0.1 and the participation rate moves up 0. 1 it’s effectively a 0. 2 percent drop in the unemployment rate. Rounding out the quote unquote, yeah, butts for the jobs report was the earnings data with average earnings rising at 0. 5 percent versus a 0. 3 expectation. Traders don’t put a ton of stock in that relative to the job count and unemployment rate, but it can definitely help tip the scales in one direction or the other. If there is some indecision based on the headline coming up this week, we have what is arguably just as important of an economic report as the jobs report in the form of Wednesday’s CPI data, the consumer price index. The Fed has repeated. Frequently recently that inflation is the big deciding factor for the trajectory of the Fed funds rate going forward and the labor market is in a comfortable trajectory. That doesn’t mean the jobs report won’t be a market mover. It always will be, but it means that there is once again, increased scrutiny on CPI and other inflation metrics as we’re waiting to find out whether or not inflation has stalled back on its way to the 2 percent target. Or whether that progress is going to resume and the last several reports make that a bit of a toss up before that we have fed chair Powell testimony tomorrow, semi annual congressional testimony, two days of it tomorrow is the first day and relative to the feds press conference at the last meeting. It’s not clear what he would say. That would be shocking to the market. Although there is always some potential for volatility. Anytime a fed chair is speaking after CPI on Wednesday, we’ll get producer prices, PPI on Thursday, as well as the with us as always jobless claims and then retail sales and industrial production on Friday, all told If those economic reports are lopsided in one direction or the other, it could certainly give yields quite a push. It seems that bonds have been waiting for the first two weeks of any given month’s economic data in order to determine their general momentum for any given month. That’s going to do it for this week. Back to you.
Matt Graham, Founder and CEO, MBS Live
Matt began as an originator in 2002. He fell in love with the idea of following MBS in real-time but felt that existing products were only scratching the surface. Thus was born MBS Live in 2007, the first-of-its-kind platform with real-time market data/analysis, and live chat with analysts, traders, and originators around the country. He is currently the Founder and CEO of MBSLive!
He’s been covering bond/mortgage markets, writing commentary, alerts, and chatting with the live community every business hour of every business day ever since.
Matt also serves as the Chief of Operations for mortgagenewsdaily.com, where he is one of the industry’s most respected mortgage rate experts, frequently quoted in the media. Mortgage News Daily’s rate index is used as the definitive resource on day-to-day mortgage rate averages.
He lives in the Pacific Northwest with his wife and son where he enjoys skiing, fishing, coaching youth sports, playing the guitar, and more DIY projects/hobbies than he’d care to admit.