Treasuries got a huge boost this morning on the ADP private jobs report for Sept. Markets were expecting ADP would report an increase of 20K to 25K ne jobs in the private sector, as reported jobs fell 39K. August jobs were however revised from -10K to +10K. ADP added more confusion top what Friday's official jobs report will be. The decline in jobs in Sept is the worst since January. Small businesses (less than 50) fell 14K, medium businesses (less than 400) fell 14K and large businesses lost 11K. Goods producing jobs were down 4K, service sector jobs +6K and manufacturing jobs  down 17K. Not a good report no matter the argument that ADP doesn't do a good job trying to mimic the BLS data. The reaction sent the 10 yr note from +4/32 to +17/32 with its yield falling to a new low yield at 2.41%, the lowest by a fraction in this recent decline. Mortgage prices improved by 5/32 (.15 bp) on the reaction.


Stock indexes were trading better in line with Asian and European equities until the ADP report, then lost their gains. At 9:00 the DJIA trade was +3, the 10 yr +16/32 at 2.42% -6 bp and mortgage prices +6/32 (+.18 bp) frm yesterday's close. At 9:30 the DJIA opened -3, the 10 yr note at 2.39% -9 bp and mortgage prices +6/32 (+.18 bp).


Earlier this morning (7:00 am) the weekly MBA mortgage applications were better last week. The Market Composite Index, a measure of mortgage loan application volume, decreased 0.2% on a seasonally adjusted basis from one week earlier.  The Refinance Index decreased 2.5% from the previous week.  The seasonally adjusted Purchase Index increased 9.3% from one week earlier and is the highest Purchase Index observed in the survey since the week ending May 7, 2010; but was 34.7% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is down 3.0 percent.  The four week moving average is up 2.0% for the seasonally adjusted Purchase Index, while this average is down 4.2% for the Refinance Index. The refinance share of mortgage activity decreased to 78.9% of total applications from 80.7% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.1% from 6.0% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.25% from 4.38%, with points decreasing to 1.00 from 1.01 (including the origination fee) for 80% loans. The 30-year contract rate is the lowest recorded in the survey, with the previous low being the rate observed last week. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.73% from 3.77%, with points increasing to 1.14 from 1.13 (including the origination fee) for 80% loans. The 15-year contract rate is the lowest recorded in the survey, while the previous low was observed last week. 


Along with Friday's Sept employment report, markets are focused on the Fed doing another easing move; that view was fortified yesterday when Japan announced it would do its own QE. Japan will buy $60B of Japan bonds and it cut its base rate to zero from +0.1%. The global QE is spreading; expect QE from England, and other European countries in the days ahead. It is a run to drive currency values lower with the result of better export business. Every major economy is now in a run to beat their currency lower. We still don't see much coming from the easing other than some lower interest rates initially, but if the easing moves are successful in improving the economic outlook interest rates won't stay low for long and likely will spike higher in a rapid move. That said, the economic recovery will remain weak until consumer spending increases and there is strong improvement in the housing sector; employment increases will lag until the underlying fundamentals improve. 


U.S. Treasury Secretary Timothy F. Geithner said countries that rely on exports for growth must change their policies or “global growth will slow and all of us will be worse off.” “It is very important to see more progress by the major emerging economies,” Geithner said today in text prepared for a speech at the Brookings Institution in Washington.


The bellwether 10 yr note is hitting stops this morning as it pushed into new low yields from last August. Mortgages are going along for the ride but have yet to break out into new high prices; still .28 basis points from testing the highs set on Sept 1st.



Leave a Reply