ISM Outshines NFP, But Neither Ended Up Leaving a Mark

It has happened before, but it’s not common: those Fridays where bonds move in one direction in response to the jobs report only to move even more in the opposite direction after the ISM Non-Manufacturing Index.  Considering that both moves were ultimately erased today, we don’t feel too compelled to overanalyze, but ISM definitely had the upper hand.  Chalk that up to the jobs report being not as strong as the headline might suggest and to ISM’s employment component being staggeringly weaker. Bonds escaped with minimal damage–especially MBS as they don’t have to worry about an auction cycle like Treasuries next week.

Econ Data / Events

Nonfarm Payrolls

216k vs 170k f’cast, 173k prev

Unemployment Rate

3.7% vs 3.8% f’cast

Participation rate

down 0.3% (implies higher unemployment)

ISM Services PMI

50.6 vs 52.6 f’cast, 52.7 prev

ISM Services Employment 

lowest since July 2020

ISM Service Prices

57.4 vs 58.3 prev

Market Movement Recap

08:57 AM Weaker overnight with additional selling after jobs report.  Some resilience now.  MBS back to pre-NFP levels, down a quarter point on the day.  10yr up only 5bps at 4.055 after being as high as 4.10

10:11 AM More gains after ISM data.  10yr down 4.5bps at 3.959.  MBS up 1 tick (0.03).

12:35 PM post-ISM rally fading.  10yr up 3.2bps at 4.036 and MBS down nearly an eighth of a point.

02:14 PM Holding ground now, slightly better than the early PM swoon.  MBS down only 2 ticks (.06) and 10yr up 2.3bps at 4.027.

05:13 PM MBS outperform into the close, ultimately hitting unchanged levels as Treasuries ticked up 4.7bps to 4.051.  Apprehension over next week’s auction cycle?  Curve steepening favoring shorter durations?  Either way we’ll take it.