Bonds Positioning For Weaker NFP?

One of the best things to understand about the jobs report is that the payroll count can go BIG in either direction, regardless of what the other data or labor market trends have been suggesting. Today’s data suggested a predictable level of labor market weakness. This isn’t something that would guarantee a bond rally, but that’s nonetheless what happened.  Rather than think of this as a “lead-off” or bonds getting in position for a weaker NFP, it’s more accurate to treat such moves as a simple circling of the wagons as traders exit previously held positions to get neutral ahead of a high risk event.  The movement in the yield curve is a solid clue here as it had steepened to what are essentially the highest levels since early 2022 by Wednesday morning and has been correcting ever since (correcting = 10s and 30s doing better than 2s and 3s). All of this is much ado about nothing.  The point is as boring as it is true: bonds can rally or sell on Friday at a pace that’s only really limited by the size of the beat/miss in the data.

Econ Data / Events

ADP Jobs

54k vs 65k f’cast, 104k prev

Jobless Claims

237k vs 230k f’cast, 229k prev

Continued Claims

1940k vs 1960k f’cast, 1944k prev

ISM N-Mfg PMI (Aug)

52.0 vs 51 f’cast, 50.1 prev

ISM N-Mfg PMI (Aug)

52.0 vs 51 f’cast, 50.1 prev

ISM Services Employment (Aug)

46.5 vs — f’cast, 46.4 prev

ISM Services Employment (Aug)

46.5 vs — f’cast, 46.4 prev

ISM Services New Orders (Aug)

56.0 vs — f’cast, 50.3 prev

ISM Services New Orders (Aug)

56.0 vs — f’cast, 50.3 prev

ISM Services Prices (Aug)

69.2 vs — f’cast, 69.9 prev

ISM Services Prices (Aug)

69.2 vs — f’cast, 69.9 prev

Market Movement Recap

08:15 AM Limited reaction to ADP data, but no bad reaction.  MBS up an eighth and 10yr down 3.6bps at 4.183

10:02 AM Off best levels after ISM data.  MBS up 3 ticks (.09) and 10yr down 2.4bps at 4.193

11:50 AM Sideways drift continues.  MBS up an eighth and 10yr down 2.8bps at 4.19

03:04 PM Best levels of the day with MBS up 6 ticks (.19) and 10yr down 4.6bps at 4.171