The Journey of Harbo 767

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MBS RECAP: Wage Growth Breakout Prompts Bond Yield Breakout

Today's bond market wrap is as simple as the headline.  Average hourly earnings or AHE is occasionally responsible for some impressive moves in bonds.  Today was one of those days.

Part of the problem was that there wasn't really any weakness in the payrolls number to offset the wage gains.  Granted, previous months had some downward revisions, but the biggest one was all the way back in June.  July's revision was then perfectly offset by August's 'beat' (i.e. -10k revision to last month and today's NFP beat the forecast by 10k).

All that to say that there was some extra focus reserved for any other standout line items in the data.  Average hourly earnings stood out because August's numbers took the annual numbers past an important ceiling, 2.9% vs 2.8%.  We've seen breaks above 2.8% on several occasions in the past 2 years, but in every case, revisions restored the ceiling.  Today's report provides the most recent chance.

Wages are a hot topic recently, largely due to the Fed's increased discourse on the topic.  Past precedent and academic models suggest that wages should be rising faster given the low unemployment rate and labor shortages in several key sectors.  An absence of wage growth is one of the things the Fed cites as a reason to be more cautious when it comes to raising rates.  Thus, if wage growth overcomes hurdles like 2.8%, the Fed and the broader bond market have to do more to account for the risk that higher wages translate to higher inflation.  And higher inflation means higher rates.

MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

FNMA 4.0

101-14 : -0-11


10 YR

2.9406 : +0.0636

Pricing as of 9/7/18 4:25PMEST

Today's Reprice Alerts and Updates

3:24PM  :  ALERT ISSUED: Friendly Reminder: Reprice Risk is Still Out There

10:07AM  :  ALERT ISSUED: Getting Ugly

8:58AM  :  ALERT ISSUED: Reprice Risk Already a Consideration For Earliest Lenders

8:39AM  :  ALERT ISSUED: Bonds Not Liking Wage Growth Data in Jobs report

MBS Live Chat Highlights

Hugh W. Page  :  "Weekend"

Sung Kim  :  "all this is setting us up for an EPIC _____"

Timothy Baron  :  "If any of us reliably knew those answers we wouldn't be her to give them to you."

Matthew Graham  :  "50/50 likelihood for all things based on efficient market principle"

Michael Kirsch  :  "what is the likelihood we will duplicate the sideways range we had from july to end of aug, support holding on the lower end of the range and meandering toward the upper boundary within the next 2 months,"

Economic Calendar

Time Event Period Actual Forecast Prior
Friday, Sep 07
8:30 Average earnings mm (%) Aug 0.4 0.2 0.3
8:30 Private Payrolls (k)* Aug 204 190 170
8:30 Non-farm payrolls (k)* Aug 201 191 157
8:30 Unemployment rate mm (%)* Aug 3.9 3.8 3.9


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