In today’s financial update, UMBS 6.0 saw a 9 basis point decline in the morning, with the 5.5 and 5.0 performing better, raising hopes for them to return to profitability. The weakening of bonds overnight was triggered by a disappointing bond auction in Japan, causing Japanese yields to rise. This unexpected development, driven by speculation about the Bank of Japan’s policy tightening, had a minor impact on rate sheets but did affect bond purchases.

Despite a modest increase in initial selling pressure due to decent jobless claims numbers, the market has already stabilized. Jobless claims came in at 220k, slightly lower than the forecast, while job cut announcements in November increased by 24% from October but decreased significantly compared to the previous year. Tech companies led in job cuts, followed by retailers and healthcare, with hiring plans and seasonal hiring at their lowest levels in years.

Investors are eagerly anticipating tomorrow’s unemployment report, which will offer a final glimpse of the job market before the upcoming Fed meeting. Additionally, the Manheim Used Car Index reported a decline in used car prices in November, which should help curb inflation. Oil prices also dipped to $69/barrel recently.

In summary, it was a relatively calm day in the financial markets, with minor fluctuations in MBS and 10-year yields. The focus now turns to the upcoming job market report, which could influence interest rates. While extreme outcomes are possible, the most likely scenario lies somewhere in between.

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