On Tuesday, MBS fell 11 bps early, while stocks also declined by 11 points. However, the 10-year treasury remained flat, and bonds were sideways to slightly stronger overnight. The dollar edged higher, and oil and US futures traded lower amid lingering concerns over the health of US regional banks. Economic data from China was weaker than expected, leading to a broad decline in markets, while investors waited for an update on the US debt ceiling impasse.
April payrolls grew unexpectedly by 253,000, the unemployment rate fell to a 55-year low, and M-o-M wage growth was reasonably hot at 0.5%. However, February and March job growth was reduced by 149,000 jobs, and three-month average employment growth was 222,000 jobs, the weakest since 1/21. Despite the slowing rate, the Fed is unlikely to cut rates, but will hold steady.
The day began with a strong bond auction in Germany setting the tone for the overnight session. Although US traders pushed yields back in the other direction, only modest changes were seen in bonds. Bonds remained sideways to slightly weaker until the 3yr US Treasury auction at 1 pm, which came out very strong, putting a ceiling on yields for the day. MBS benefited from the auction more than 10-year Treasuries.
In the end, MBS were up 16 bps, while stocks lost 19 points, and Treasuries remained largely flat. Although political posturing regarding the debt ceiling continues, markets remain confident that the US will not default and that the debt ceiling will be raised.

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