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Today's Market Commentary

Friday, March 8, 2013

Nonfarm Payrolls drastically exceeded expectations coming in at 236k vs. 165k expected. The change in Private Payrolls similarly exceeded at 246k vs. 170k expected. The unemployment rate dropped to 7.7% (7.9% expected) while average hourly earnings MoM and YoY came in at consensus. The Underemployment rate dropped slightly to 14.3% from 14.4% prior.

Overnight, Chinese exports rose more than expected and the Yen moved lower while Japan Q4 GDP was revised up from -0.4% to +0.2% sparking a rally in the Nikkei (+2.6%). In the US, the bond market opened up down a couple of ticks until the Nonfarm payrolls hit the tape and then gapped lower. At the bottom, 10-year notes had dropped 3/4 of a point but are now only down 20 ticks (2.06%). Despite the sell-off MBS prices are only slightly underperforming bullet duration hedges, but in the bear steepener (2s10s steeper by 5 bps) they are underperforming curve hedges by 4-5 ticks. While the news was definitely positive this morning, Unemployment is still over 7.5% and the economy has a long way to go. Once again volatility will be higher this year than in years past as Fed exits and the end of QE are on everyone's radar. We will continue to gap lower on bad news, and move higher when Ben/Janet tell us they will be staying the course or when bad news materializes out of Europe/Asia.


           








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