While it's essentially a given the bigger stimulus is on the way with democrats controlling the senate (thus implying more Treasury issuance and a quick adjustment to higher yields as a result), it's worth remembering that the underlying phenomenon creating the need for that stimulus is still a thing. Today's big miss in the December jobs report provides a solid reminder. Sure, bigger stimulus pushes rates higher, but covid-driven economic realities continue trying to hold rates down (with plenty of help from the Fed). Jobs numbers like today's do absolutely nothing to push the Fed away from its ultra bond-friendly stance.
Here's a quick run-down:
- Nonfarm Payrolls
- -140k vs 71k f'cast, 336k prev
- Unemployment Rate
- 6.7 vs 6.8 f'cast, 6.7 prev
Notably, the 336k was revised higher from 245k previously. That helps offset some of the weakness, as does the drop in the unemployment rate. One may wonder why we could lose 140k jobs and still see a drop in unemployment. First off, the unemployment rate and the job count come from two separate surveys. The former is a direct-to-the-public survey while the latter is a much broader and much more official count of the number of payrolls on record at 145k companies and more than 600k worksites. That's why the bond market often favors the NFP number over the unemployment rate.
Post-covid is a different story. There can actually be more useful information in the "household survey" (the one used to ask people whether or not they're employed). There are several positive anecdotes in that data that help push back against the rotten job count:
- number of "permanent job losers" declined by 348,000
- number of persons jobless 15 to 26 weeks declined by 303,000
- 4.6 million people said they didn't look for work due to pandemic, up from 3.9 million last time.
Wave a magic wand to end the pandemic, thus allowing those 4.6 million people to re-enter the labor force and it would take a pretty decent bite out of the still-huge post-covid jobs deficit.
There are two reminders for the bond market here.
- BOND-FRIENDLY: Covid continues to account for a massive jobs deficit--one that will prevent the economy from firing on all cylinders until covid "goes away" (for the most part)
- BOND-BEARISH: Covid continues to offset the implications of a meaningful portion of the labor market weakness. There are millions of people who are ready to come back to work. If we assume that even half of them are able to do so (official job openings numbers have been running over 6 million, so that's a safe assumption), the employment situation is actually quite a bit less dire than the current job count (NFP/non-farm payrolls) make it seem.
All told, a report like today's can thus easily coexist with an ongoing trend back toward higher interest rates. That trend is completely obvious in Treasuries, even if it's been almost completely hidden in the mortgage rate world. The bounce seen after the GA senate election keeps the trend firmly intact. On a hopeful note, we've lost enough ground since then that we can soon assess whether or not the upper boundary of this trend channel will provide a supportive ceiling bounce for Treasury yields. It's hard to imagine the market and the economy are already ready for a sharper rise in rates, but ultimately, it's up to the bond market to show us where it wants to go. Logic doesn't always apply.
MBS Pricing SnapshotPricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
103-08 : -0-04
1.1000 : +0.0290
|Pricing as of 1/8/21 9:38AMEST|
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