Job Hopping: Bonds were bounced better in extreme light trade with the mid-curve leading higher the majority of the session with the 5-yr swinging to 2.401% from a 2.518% yield since the report. The long weekend and sliding stocks aided some, while the upcoming $73B in issuance to hit next week helped keep a lid on prices. Now that the pretty poor jobs report is over and done with the market will concern itself with how to take down all the supply coming through in the 3-30-yrs. The market was given some support on the less aggressive comments from ECB's Trichet following their rate meeting while global bonds were generally higher. The curve was swung to the week's steepest levels early, but came back to a more flattened 250 on the 2-10-yr yield spread. The dollar was given a flight-to-quality bid while the euro was also hampered by a less than stellar economic outlook. The euro was backed off to the week's lows, ticking through to 1.3990 while losing ground steeply to the yen which rode along with the buck, getting back to 95.71 late. . The week ahead offers little in the way of data outside of the ISM services report Mon so the auctions will be the focus. The first of the auctions hit Mon with the $8B 10-yr TIPS, while the Fed will be in buying in the 4-7-yr space as they continue to work their outright bond buying. The markets are closed Fri. Have a great holiday weekend.

Slowing Trade?: BBH's Marc Chandler notes that "Japan's Financial Service Agency...reportedly will limit the amount leveraging available to retail foreign exchange participants," estimated to account for a quarter of daily activity in Tokyo, and a BIS survey says averages about $302B daily. Next year they plan to cap leverage at 50-times next year and 25-times in 2011. "Japan had de-regulated retail foreign exchange margin (leverage) trading nearly ten years" ago it bolstered activity (the infamous Mrs. Wantanabe)"A private survey...found that up to 20% of those with margin accounts indicated that the caps...may prompt them to quit." Domestic low returns caused people to move savings overseas through mutual funds and directly in playing the currency markets. With "25-times leverage, a 4% move, which is essentially the gain in the yen from June 5 to June 23 would have wiped out one's capital (if one was long dollars during the time, which given the widening interest rate differential and the Japanese purchases of US bonds is not an unreasonable scenario)."

Well Bid: Treasuries are holding higher, but have lost some of the push on the longer end, feels like its gearing up for another lightly traded leg up, as the trade looks out to large supply on tap next week. The market will need to absorb $73B in 3-30-yrs (see 11:06 Bond comment for details) and may see mixed results (the UK is also auctioning off a batch). The mid-curve has been swung the widest but there is little left in the way of size, so any further moves up may be brief. The 10-yr could take a crack at the 3.445% level if they can get things going. The curve has been flung around with in the session having hit the week's widest levels, but has backed off on unwinding taking the 2-10-yr yield spread back to about was Wed, now 249.3. The dollar was able to grab a bid on safety buying, with the index back at the week's highs while the euro has been stalled lower near the 1.4000 area, but is getting a profit-taking bid. The yen has been able to bounce along with the buck, at 96.00 while at its best levels on the euro in the week. The day's data was overall bond friendly, with the worse than expected payrolls report and the higher, although not as high as anticipated, unemployment rate running 9.5%. The financial futures and options markets had an early close (13) with a full close in markets Fri.

Jobs. Jobs. Jobs: WSJ reports that a broader measure of unemployment is the "U-6" which includes "people who have stopped looking for work or who can't find full-time jobs. The index had posted a 0.6 percentage point jump in May. The pace of increase has begun to mirror the rise in the headline rate after soaring at higher pace earlier this year, possibly signaling that more workers are starting to look for jobs again...everyone in the official rate plus “marginally attached workers” — those who are neither working nor looking for work, but say they want a job and have looked for work recently; and people who are employed part-time for economic reasons, meaning they want full-time work but took a part-time schedule instead because that’s all they could find." They add a dope chart (updated to previous report).

 

Holding Higher: The market is stalling out at better levels with the 10-yr hanging near the 3.48% point, but size has disappeared and trade is sketchy. The less-bad-than-expected unemployment rate is still horrid at 9.5%, and the number itself has become more able to throw its weight around in the markets while it gains in importance. The run since the report has been led by the belly, with the 3-7-yrs leading with the 5-yr shaving over 10 basis points in yield

Mortgage Rates Fall: Freddie reports the average 30-yr mortgage fell over the past week to 5.32% from 5.42%, the 15-yr dropped to 4.77% from 4.87% while 1-yr adjustable squeaked up to 4.944% from 4.93% (Reuters)

Agencies:

Freddie will sell $2B 3-mo and $1B 6-mo bills Mon

Schizophrenia: The news that China has backtracked on has a little less teeth than the headlines it garnered. Granted, headlines alone will move markets, but some need to be investigated further to clarify their base in reality. China has used headlines to air their grievances (as does any government), but the schizophrenic nature of their comments on the dollar, from various sundry agencies are wider apart than is often the case. Naked Capitalism has this to say on the China business:

It's bureaucratic infighting gone public. We wrote back in 2008 that the foreign [ministry] and the central bank are at loggerheads about the dollar. The central bank accepts that the renmimbi must rise and China needs to move to a consumer-led economy, but the foreign ministry has the opposite view and wants to keep the Chinese currency cheap...But even though Bloomberg reported on the central bank's report and some follow up remarks a few days ago clarifying its [position], the story today gives no clue that the remarks out of China appear schizophrenic (unless one has been paying attention) and are from different parts of the officialdom.

Ticking Off: The market has backed off some following the supply size announcement, with $73B notes and bonds along with $63B in the shorter bills.  The total was not quite as high as many had anticipated, so the initial sell-off should be brief.

Out: Treasury will sell $8B 10-yr TIPS Mon, $32B 3-yrs Tues, $19B reopened 10-yrs Wed, $32B 3-mo and $31B 6-mo bills Thurs along with $11B reopened 30-yrs Thurs

Next: Treasuries were getting a renewed bid even as the huge supply (most likely "huge") for next week is soon to be announced. The 3-7-yrs are now leading trade. Treasury will clue the players in to the size they will unleash on the market. They will offer a boatload of 3-and-6-mos, 3-10-and-30-yrs along with some 10-yr TIPS. Global bonds are generally bid with the bund getting a post- ECB bid as well as trading in sympathy with the US action. The Fed will also be in doing more bond buying, stepping into the shorter end in the 4-7-yr range Mon and the 1-2-yr space Thurs.

Jobs Bid: The dollar and yen are bid following the run of negative data as safety plays come back into vogue and China claims it doesn't mean anything with talk of a new reserve currency. The euro slid off to trade to just over 1.4000 versus yesterday's brief trip to 1.4200 and will be looking for support down near 1.3985. The ECB is out of the way and the market got what it expected with no change or new special instructions. The yen was able to wind back to offer up less than 96.00 per buck after ranging near 96.60 while seeing a straight run back against the euro to 134.63 from 135.90. The dollar index saw the week's widest gains on the jobs, trading easily through 80.00. Gold fell as the buck saw a bid and has been weighed on as the China reserve talk losses some heat, trading 928.88 (-11.92) and crude dropped to its lowest levels since last Tues as fewer jobs equals lessened demand expectations.

Mixed Rally: The market is now looking out to the treasury announcement (11) while expecting some at record or straight record levels of offerings to hit next week. The expectation for larger issuance, at least on the TIPS, will help weigh on prices, although, once the news is done it may unleash a little relief rally, but for the most part, the day is over for most players. Price action will likely remain volatile and thinned but with the 10-yr yield getting trapped between 3.46% and 3.57%, barring any new news.

Run Slowed: The market has backed off the early rally, with the numbers now being analyzed to death and traders packing it in and going home ("Factory...what?"). The curve has been twisted around with the swing toward 253 getting flipped to trade back to 248 on the 2-10-yr yield spread.

Short Run: The short end is leading the rally with the 2-yr back through to the LAST payrolls level, knocking the yield back through the 1% point, trimming 6.4 basis points off the pre-release levels. The curve was twisted both ways while its initial spike steeper has been tempered quickly as the 2-10-yr yield spread is running 249.1.

Bid on Jobs: Treasuries are bouncing on the run of generally negative reports but the mash-up of numbers are going to be dissected to the bone. The market will take some time to really get a handle on all the oddball, early release data, with a worse than economists' expected payrolls, but the unemployment rate was less pumped than anticipated while earnings were flat and hours fell. The continuing claims number actually fell, off along with the 4-wk moving average. The shorter end got a large run-up, with the 2-5-yrs and under jumping hard. Trade is being infected with lightened trade, even for a payrolls day

Trade Off: The market is limping into the big-data day, with the trade holiday light into a shortened week and session. The announcement of supply for next week, at potentially record levels, runs a wide range of issues from 3-mos to 3-yrs out to 10-and-30-yrs along with a sprinkling of TIPS. After yesterday's trip through the 3.6% level the data are all that matter, specifically payrolls, but the actual unemployment rate is getting more traction as a market mover. The ECB did what they were supposed to and left rates unchanged, but anything, really, just about anything, could come out of the extended press conference. The curve has been slanted well steeper with the 2-10-yr yield spread running 250.3, holding the week's steepest levels. The dollar has been bid, getting the index back through 80.00 and the while the euro has backed off from the brief trip to 1.4200. The yen is getting a steep push off on the buck heading back to 97.00 while sliding on gaining on the euro. The day has a mash-up jobs report, initial jobless claims and all their attendant inputs (8:30) along with factory orders late (10).

Backing Off: The market is leaning lower on the payrolls report, expectations for which, for some reason, keeps edging lower even as the ADP guessitimate was worse. The revisions should also be worse, but the market is prepared for a wide range on the number.

Table of overnight activity in the financial markets.

Ticking Back: Treasuries battled back from the worst levels since last week with the 10-yr having fallen off to take the yield up to 3.6% before working back to 3.535%. Data was a mixed, but generally not so hot, and trade ramps up concern over supply with California’s troubles adding to that worry.  The market was twisted up with short end outperforming and the long seeing some inflation issues. The market got dinged on the long end as SF Fed’s Yellen spoke overnight and said the Fed could be locked in at record low rates forever and she worried over inflation. The market pulled back late on some pre-payrolls squaring in badly thinned trade while the 7-yr and under getting back to previous payrolls levels. The curve has been holding near the steepest on the week with the 2-10-yr yield spread running 249.3 from 241. The dollar was knocked off and saw the euro trade to 1.4200 as risk concern lessened while the yen was pushed off to give up 96.60 per buck and 136.70 per euro. The day ahead offers a mass mash of numbers with the displaced jobs report, initial jobless claims and all their attendant inputs (8:30) along with factory orders (after pretty much everyone will have gone home,10). There is currently no Fed-speak on tap, while the financials close a little early with full market close Fri.

Ticking Lower: Trade has slid into the ADP jobs report and with mortgage applications hitting well lower