MBS Week Ahead: Labor Day Week, With One Small Exception

Posted To: MBS Commentary

Normally, weaker readings on nonfarm payrolls result in bond market gains. While that was initially true on Friday, in less than 30 minutes, bonds were vaulting to the weakest levels of the day. They remained near the top end of the recent range for the rest of the day. What's up with that?! We know that traders were disproportionately "long" in 10yr futures as of Tuesday, based on Friday's Commitment of Traders report. That means they were betting on rates moving lower. If those traders were to close those positions, it would result in exactly the sort of sell-off we saw. Furthermore, if those traders were going to close those positions ahead of a 3-day holiday weekend, that would have been the time of day to do it. With all of that in mind, the most optimistic hope is that...(read more)

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