This is Matt Graham with the MBS Live Market Update. Until the middle of last week. Bonds were generally rallying since May 22nd and exclusively rallying since June 20th. The more recent rally came courtesy of a friendlier fed outlook and the sense that softer econ data would continue to support the potential shift in fed rate expectations. In other words, several fed speakers had said things that would make the market think they were slightly more willing to consider rate cuts in the near term. As opposed to perpetually holding steady and waiting for tariff driven inflation that may or may not show up. Virtually all of the anecdotal evidence supported a weaker forecast for last Thursday’s main event, which was the big jobs report. Traders were clearly positioned for that because it did not take much of a beat for a big reversal in the recent rally. When we talk about anecdotal evidence, we’re referencing all of the other economic reports that include a labor market component for the same timeframe as the jobs report. So in this case, that’s the month of June. Notably the job openings data that came out last week was for the month of May, and it was stronger than expected and helped to push yields back in a higher direction ahead of Thursday’s jobs report. And if that hadn’t been the case, we might’ve seen an even weaker response to the data itself. As for the data itself, NFP non-farm payrolls came in at 147K versus a 110 K forecast, and that was up 3,000 jobs from the previous reading of 144K. A very small increase, but a notable departure from the raft of other economic data that suggested weakness. In addition, the unemployment rate fell to 4.1. from 4.2 and that was well short of the 4.3 forecast, and some of that can be explained away by a drop in labor force participation rate. Anytime that is moving lower, it would imply a similar move, lower in the unemployment rate. All of the things being equal. In other words, if you wanna look at it through the most economically bearish lens, you could say that the unemployment rate merely held steady as opposed to falling 0.1%. But even holding steady was better than the market expected. Thankfully, again, bonds and rates had already begun to circle the wagons ahead of the jobs report. Thanks to that higher job openings number, and also a bit of a paradoxical response to a very weak ADP report on Wednesday, ADP has a storied history with NFP oftentimes suggesting a big beat or miss in one direction only for the actual jobs report to beat or miss in the other direction. And this was indeed one of those cases, considering a DP employment came in at a negative 33K versus a forecast for a positive 95K in a previous reading of 29K. Quite a big difference, the jobs data itself ended up pushing 10 year yields only 8 bips higher, which sounds like a lot at first glance, but it would’ve been worse had it not been for the two days of wagon circling beforehand, fed rate expectations jumped quite a bit more up 15 bips for the December meeting, and that erased more than half of a rate cut from the outlook and it gets fed funds futures back to the middle of the range that had been in effect from mid-May through June 20th. But of course, labor market data is only one side of the coin when it comes to the rate outlook. Resilient labor market data has generally allowed the Fed to justify patients in waiting to see if tariff driven inflation shows up with Powell recently saying it should start to show up in June’s data. Next week’s CPI. The consumer price index is critically important and the next obvious major flashpoint for the bond market between now and then, the present week is fairly dead in terms of scheduled events, econ data, in fact, is almost completely absent. The only notable calendar events are the treasury auctions Tuesday through Thursday, and the Fed Minutes on Wednesday afternoon. It’s not abundantly clear what Wednesday’s Fed Minutes could add to the context given all of the recent Fed speeches and even testimony from Fed Chair Powell. But it’s always an event that’s worth tuning in for because it’s always possible to learn something new when we have official communications from the Fed. In addition, there are several fed speakers throughout the week that could offer additional context on the willingness to consider near term cuts and the extent, if any, to which last week’s jobs report may have changed things. Those Fed speeches are arguably more important than the Fed Minutes because they are more timely and will give those Fed speakers a chance to address all of the events that have happened in the three weeks since the last Fed meeting. That’s gonna do it for this week. Back to you.
Matt Graham, Founder and CEO, MBS Live
Matt began as an originator in 2002. He fell in love with the idea of following MBS in real-time but felt that existing products were only scratching the surface. Thus was born MBS Live in 2007, the first-of-its-kind platform with real-time market data/analysis, and live chat with analysts, traders, and originators around the country. He is currently the Founder and CEO of MBSLive!
He’s been covering bond/mortgage markets, writing commentary, alerts, and chatting with the live community every business hour of every business day ever since.
Matt also serves as the Chief of Operations for mortgagenewsdaily.com, where he is one of the industry’s most respected mortgage rate experts, frequently quoted in the media. Mortgage News Daily’s rate index is used as the definitive resource on day-to-day mortgage rate averages.
He lives in the Pacific Northwest with his wife and son where he enjoys skiing, fishing, coaching youth sports, playing the guitar, and more DIY projects/hobbies than he’d care to admit.