Wednesday, 2/3/10 10:17 AM

At 8:15 the Jan ADP employment estimate, expected at -35K jobs for the month was better at -22K; Dec ADP data revised to -61K frm -84K originally reported. Neither treasuries or the stock indexes liked the data; at 9:00 the 10 yr note -8/32, the DJIA -8 and mortgage prices -4/32 (.12 bp). The ADP was the smallest decline in two years. ADP figures overstated the Labor Department’s estimate of private payroll losses by 500,000 in the six months to December. The economy has lost 7.2 million jobs since the recession began in December 2007, the most of any downturn in the post- World War II era. Today’s ADP report showed a decrease of 60,000 workers in goods-producing industries including manufacturers and construction companies. Service providers added 38,000 workers, the second consecutive increase.  The ADP report is based on data from about 360,000 businesses with at least 22 million workers on payrolls. ADP began keeping records in January 2001 and started publishing its numbers in 2006.

Friday the official employment report from the BLS is expected to show non-farm jobs were flat in Jan with the unemployment rate increasing to 10.1% frm 10.0% the past two months. The ADP data does not include government workers which causes the disparity between ADP and BLS. The range of estimates for the Friday report is -40K to +75K, a wide range but there always is. 

At the Jan ISM services sector data, generally seen by traders as more important than the ISM manufacturing report that hit on Monday. The overall index was expected at 51.0 frm 50.1 in Dec. as released the index was 50.5 with Dec revised lower to 49.8 frm 50.1. New orders component at 54.7 frm 52.0, price index at 61.2 frm 59.6 and employment at 44.6 frm 43.6. Not much initial reaction in either direction in stocks or interest rate markets. Any index read over 50 is expansion.

Treasury released the borrowing needs for the quarter and the amounts of next week's quarterly refunding of 3 yr, 10 yr and 30 yr notes and bonds. Last month the total of the three was $84B. Supply next week and the Jan employment report on Friday will keep a lid on any improvements of consequence on mortgages and treasuries. Treasury will sell $40B of 3 yr notes, $25B of 10 yr notes and $16B of 30 yr bonds. 

Up next, but no real impact on the rate or stock markets, more chatter on regulatory reform at 10:00 frm Kevin Warsh a Fed governor speaking to the New York Association for Business Economics on regulatory reform.

Interest rate markets remain tied to a very narrow range; the 10 yr note driver for mortgages cannot push below 3.60% or above 3.70%, trading in that range now for the past two weeks. MBSs also stuck with no real changes, failing to clear its resistance at 101 3/32 (101.90 bp). A mixed technical picture, chart resistance still is holding any rallies but both the 10 yr note and the MBS market are trading below key MAs on the 10 yr and above on the MBS price chart.

CNBC reporting that it costs 2 cents to make a penny and 10 cents to make a nickel; hey Barney, better get on it. A possible budget cut if we do away with both of them.

Everything scheduled for today is on the table; the bond and mortgage markets are under some minor selling pressure with the stock market slightly lower so far. Not likely that the rate markets can rally today, unless there is a huge decline in equity markets that we are not expecting.

PRICES @ 10:10 AM

10 yr note:                          97.16 -9/32 3.68% +3 BP

5 yr note:                            99.10 -5/32 2.40% +4 BP

2 Yr note:                           100.00 -1/32 0.88% +1 BP

30 yr bond:                         96.12 -11/32 4.60% +3 BP

Libor Rates:                        1 mo 0.229%; 3 mo 0.249%; 6 mo 0.383%; 1 yr 0.846%

30 yr FNMA 4.5 Feb:           @9:30 100.28 -6/32 (.18 bp) (-4/32 (.12 bp) frm 9:30 yesterday)

15 yr FNMA 4.0 Feb:           @9:30 101.19 -6/32 (.18 bp) (-3/32 (.09 bp) frm 9:30 yesterday)

30 yr GNMA 4.5 Feb:          @9:30 101.06 -5/32 (.15 bp) (-4/32 (.12 bp) frm 9:30 yesterday)

15 yr GNMA 4.0 Feb:          @9:30 102.10 -5/32 (.15 bp) (-3/32 (.09 bp) frm 9:30 yesterday)

Dollar/Yen:                         90.84 +0.49 yen

Dollar/Euro:                        $1.3946 -$0.0015

Gold Apr:                           $1117.20 -$0.80

Crude Oil Mar:                    $77.38 +$0.15

Goldman-Sachs

Commodity Index:              509.81 +2.53

DJIA:                                10290.95 -5.90

NASDAQ:                          2189.43 -0.62

S&P 500:                          1100.65 -2.67