Bonds Circle The Wagons Ahead of High Risk NFP

The consensus for tomorrow’s NFP (nonfarm payrolls, the principal component of the big jobs report) is 110k–not much of a downgrade from last month’s 139k.  The bond market has recently been trading as if it expects to see an even lower number–a fact that’s not too surprising given the preponderance of other data that suggests a weaker labor market in June. The latest in that list was today’s ADP employment report which completely whiffed (-35k vs 95k f’cast). Bonds initially rallied on that news, but didn’t maintain the gains, possibly due to all of the preemptive rallying already in place over the past 2 weeks, and possibly because ADP is notorious for paradoxically diverging from NFP on any given month despite broad long-term correlation. Today’s weakness was minimal in the bigger picture and could just as easily be viewed as part of a 2-day process of circling the wagons (pausing and modestly correcting a prevailing trend on the eve of high-consequence data).

Econ Data / Events

ADP Employment

-33k vs 95k f’cast, 29k prev

Market Movement Recap

08:27 AM slightly weaker overnight  but erasing losses after ADP data–at least in the shorter end of the yield curve.  MBS now unchanged.  10yr up 4bps at 4.279, but 2yr is down 1.7bps.

09:15 AM Back down to weaker levels.  MBS down 5 ticks (.16) and 10yr up 5.3bps at 4.292

12:46 PM Holding at 5 ticks (.16) weaker in MBS.  10yr now up 6.4bps at 4.303

03:10 PM Off the weakest levels in Treasuries with 10yr now up only 4.8bps at 4.288.  MBS down an eighth.