Mostly Quiet Ahead of Friday’s Jobs Report

Bonds lost a bit of ground on Thursday with most of the weakness seen in the overnight session in sympathy with European bond market weakness. The rest of the selling followed a stronger weekly jobless claims report.  That said, we wouldn’t give the data all the credit based on the timing of the selling and additional back-and-forth throughout the day. Tomorrow is far more interesting anyway. It brings what many view as the first clean reading of the big jobs report since before the government shutdown. Point being: the market will likely be more willing to react to any result that falls far from the median forecast–especially if the job count and unemployment rate both make the same case.

Econ Data / Events

Challenger layoffs (Dec)

35.553K vs — f’cast, 71.321K prev

Continued Claims (Dec)/27

1,914K vs 1900K f’cast, 1866K prev

Jobless Claims (Jan)/03

208K vs 210K f’cast, 199K prev

Trade Gap (Oct)

-29.40B vs $-58.9B f’cast, $-52.8B prev

Market Movement Recap

08:54 AM Weaker overnight with Europe and additional selling after Jobless Claims data. MBS down an eighth and 10yr up 2.6bps at 4.181

01:05 PM Sideways near opening levels. MBS down an eighth and 10yr up 1.9bps at 4.174

03:02 PM Same same.  MBS down 3 ticks (.09) and 10yr up 2.7bps at 4.182

US bonds have been taking clear cues from Europe in overnight trading recently. Today’s example involved a 3bp sell-off on both sides of the Atlantic. The 8:30am Jobless Claims data may be garnering more volume, but it has only added modestly to the morning’s selling pressure so far. 

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Ultimately Underwhelming Despite Seemingly Significant Data

There was certainly the potential for volatility today with the confluence of ADP, ISM, and Job Openings data. But the results ended up being close enough to consensus to obviate any massive reactions. Yields hit their lowest levels in a week after ADP came in slightly softer, but most of the rally was already in place from the overnight session. Stronger ISM and job openings pushed bonds back in the other direction, but not enough to result in bond market losses or negative reprices. 

Econ Data / Events

ADP Employment

41k vs 47k f’cast, -32k prev

ISM N-Mfg PMI (Dec)

54.4 vs 52.3 f’cast, 52.6 prev

ISM Services Employment (Dec)

52.0 vs — f’cast, 48.9 prev

ISM Services New Orders (Dec)

57.9 vs — f’cast, 52.9 prev

ISM Services Prices (Dec)

64.3 vs — f’cast, 65.4 prev

USA JOLTS Job Openings (Nov)

7.146M vs 7.60M f’cast, 7.670M prev

Market Movement Recap

08:17 AM Steadily stronger overnight and slightly stronger after ADP.  MBS up 5 ticks (.16) and 10yr down 4.2bps at 4.123

10:02 AM Losing ground after 10am data. MBS back to unchanged and 10yr down 1.3bps at 4.152

12:06 PM Recovering a bit into mid-day. MBS up 3 ticks (.09) and 10yr down 2.8bps at 4.138

04:42 PM Off the strongest levels, but still in stronger territory. MBS up 2 ticks (.06) and 10yr down 1.6bps at 4.149

Wednesday had the potential to cause bigger volatility for rates due to the confluence of several important economic reports. If that data had been lopsided in one direction or the other, rates likely would have moved more. As it happened, the data was mixed. The net effect was an exceedingly modest drop in the average 30yr fixed rate. Despite the tiny move, this brings MND’s 30yr fixed rate index back in line with the 2-month lows seen on several recent occasions. Bottom line: today ended up being uneventful in an inoffensive way.  From here, Friday’s jobs report represents the same sort of potential for a volatile reaction.

Bonds rallied steadily overnight with more of the gains aligning with a data-driven bond rally in Europe. The overnight move brought 10yr yields roughly 2bps lower from yesterday’s close.  Another 2bps of improvement followed this morning’s ADP employment data. ADP’s job count wasn’t particularly far below forecasts (41k vs 47k), but the previous month wasn’t revised much higher (-29k vs -32k initially). At 10am ET, we’ll get Job Openings and ISM Non-Manufacturing–a combo that is arguably heavier hitting than ADP, if the results are not right in line with forecasts.