If you’ve ever willingly sought and and enjoyed vanilla ice cream, then you’re already familiar with the flavor of today’s bond market rally. The employment data was just weak enough to cast a modicum of doubt on the certainty of the Fed announcing tapering on September 18th. Even if it doesn’t cast such doubt for all market participants, July’s revision to 104k payrolls can’t help but suggest a somewhat softer approach.
The caveat is that most of the revision was in government payrolls whereas private payrolls (the ones that have been fueling the recovery) were revised to 127k versus 161k previously. It’s that 127k revision and today’s 152k initial print in Private Payrolls that looks most in line with the market reaction. Bond markets have rallied, but they haven’t shot the moon. 10yr yields are down… But they’re down to 2.90-ish (a rate they would have had to have moved UP to on most any other day in recent weeks). Fannie 4.0 MBS are up to 102-09, just a few ticks inside their long term floor (broken yesterday) at 102-01.
The bounce back is “good, but not great.” It leaves some room for debate about how tapering will shape up, but consider that we have the most dovish member of the FOMC (Chicago Fed’s Evans) out this morning AFTER the jobs data saying he “could be persuaded” that it makes sense to reduce asset purchases in September. It’s hard not to view this morning’s rally as a victorious battle in a war that we’re losing.
Source: Mortgage News Daily