- ISM Manufacturing
- 41.5 vs 36.9
- IHS Markit Manufacturing
- 36.1 vs 36.9
- Construction Spending
- +0.9 vs -3.5 forecast
ISM Manufacturing beat its forecast by a pretty big margin and MBS fall to the lows of the day... pretty simple right?
Not exactly.
First off, let's consider a few internal components in the ISM data:
- The 41.5 PMI headline is still the lowest since April 2009
- New Orders 27.1 vs 42.2 previously, lowest since Dec 2008
- Employment 27.5 vs 43.8 previously, lowest since 1949
Even then, we can simply look at trends in Treasuries and stocks to confirm no major reaction in financial markets. On the bond side of the equation, yields had been rising steadily since 3am. And stocks didn't really react for better or worse. Typically, when it comes to economic data moving markets, we'd expect to see at least some level of correlation between stocks and bonds. There's a weak case to be made for that, but if so, it argues a flat response as opposed to bond market weakness.
Bottom line: the bond market weakness looks to have been the order of the day with or without the data, or at least the order of the morning. Whether it continues into the afternoon remains to be seen. For now, MBS are at their weakest levels of the day with 2.5 UMBS down 1 tick (.03) at 104-02. This is exactly an eighth of a point below the morning's highs.
Those highs were a bit early for even the earliest lenders to use as a baseline for rate sheets, so negative reprice risk is limited, even if not impossible to rule out completely.
