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Market Commentary

Market Commentary

January 09, 2015
10-YEAR NOTES   102-03 (+01)
FN 3.5% COUPON   104-29.5 (+02.5)
SUPPORT   2.40%
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    Today the U.S. Labor Department showed that the economy added more jobs than expected in December, adding support to the Federal Reserve's desire to raise rates. Total Nonfarm Payrolls rose by 252K in December vs. consensus of 240K and November's number was revised up from 321K to 353K. The Unemployment Rate declined to 5.6% vs. 5.8% prior (consensus 5.7%), reflecting in part a decline in labor force participation which went from 62.9% (revised) to 62.7%. In December 2.3 Million people were marginally attached to the labor force, and among them 740K were considered discouraged workers (down by 177K YoY). Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. In December, The average workweek for all employees on private nonfarm payrolls was unchanged (MoM) at 34.6 hours, and average hourly earnings decreased by -5 cents to $24.57 vs. +6 cents in November. Wholesale Inventories for November are expected to rise +0.3% vs. +0.4% prior with Wholesale Trade Sales expected to come in flat to October's +0.2% advance. 
     Yesterday, treasuries sold-off ahead of the Nonfarm Payrolls release, and in response to President Obama's announcement that a -50 bps reduction in the FHA's mortgage insurance premium (MIP) will take affect at the end of January. The updated MIPs will apply to existing loans and annual MIPs. Ginnie's continue to suffer in response, with the G2 3.5 coupon down another -4 ticks after falling 16 ticks the day before. The 10-Year note sold-off another 16 ticks, pushing yields up by +5.7 bps to 2.01%. The coupon stack tightened, up 2-3 ticks in the belly coupons, and MBS outperformed treasury hedges by 1-2 ticks with the higher coupons outperforming the lower coupons. The curve continued to bear steepen, with 2s10s up +6.5 bps to 140.9, pushing the 20 day average to 149.4 vs. 157.9 prior. Long-end yields rose, pushing the 30-Year bond up +7.6 bps to 2.592%. The 30-Year current coupon increased +6 bps on the day, closing at 2.70% and the 15-Year followed suit, up +2 bps to 1.97%. The G2/FN swap increased 1-6 ticks in the production coupons led by a +6.5 tick increase in the 3.0% coupon. The G2/FN 3.5% swap increased to 0-9 vs. 0-6+ prior. Today treasuries are falling from session highs in response to the hotter than expected Payrolls/Unemployment data, stabilizing oil prices and a rally in equities. The curve has bull steepened with 2s10s up +5 bps and MBS performance vs. treasury hedges is mixed with the higher coupons outperforming the lower coupons.
Have a Great Weekend!
Today's Events:
01/09 Nonfarm Payrolls 05:30 December 240K 252K 321K 353K
01/09 Unemployment Rate 05:30 December 5.7% 5.6% 5.8% -
01/09 Wholesale Inventories MoM 07:00 November 0.3% - 0.4% -
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