The negative jobs report delivered a rally after all — just not the one the morning tape threatened. UMBS 5.0 closed at 96-28 (96.88), up 2 ticks on the day, after opening nearly a full point lower; the 30-year rate finished at 6.74%, three basis points better than yesterday and a fresh weekly low.

The day was a round trip and then some. UMBS 5.0 opened at 96.00 — dislocated hard from Treasuries as MBS pricing shook loose on the negative NFP print — then clawed back the entire morning gap and closed 2 ticks above yesterday. The 10-year Treasury finished at 4.647%, down 3 basis points on the day, holding onto most of the post-jobs bid. That's the shape of a healthy risk-off session for bonds: Treasuries rallied on the weak labor data and held, while MBS caught up over the afternoon once the volatility drained out of the morning trade. The spread blowout that scared the 9 AM rate sheets resolved into positive reprices by the close.

For borrowers, the improvement is now on the sheets, not just in the futures. 6.74% is a couple of basis points better than where you could have locked yesterday, and the week ended at its lows. The macro case has quietly shifted lower — a negative payrolls print is hard to argue with — but the September FOMC meeting is still a live wire, with Fed officials pulling in the opposite direction. Direction has improved for borrowers with runway; those on a deadline got a slightly better rate to lock into than they had 24 hours ago.

The September meeting is the next binary event, and today's jobs miss complicates any hawkish case without settling it. Expect Fed commentary to move markets both ways over the next several weeks. Next week's data is lighter, so the tone set by today's rally may hold unless a speaker jars it.

— David Burson, NetRate Mortgage