Morning Report: ADP jobs report disappoints.

Vital Statistics:

	Last	Change
S&P futures	3648	-12.6
Oil (WTI)	44.07	-0.31
10 year government bond yield		0.94%
30 year fixed rate mortgage		2.78%

Stocks are lower this morning on no real news. Bonds and MBS are down.

Jerome Powell speaks at 10:00 am today. Bonds and MBS have been a touch volatile based on clues for added Fed purchases.

The share of loans in forbearance increased last week to 5.54%, up from 5.48% the week before. “For the second week in a row, the share of loans in forbearance has increased, driven by a rise in new forbearance requests and another slowdown in the pace of forbearance exits,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “The increase was across all loan and servicer types. Even GSE loans, which had previously declined for 24 straight weeks, saw an increase last week.”

Mortgage applications fell 0.6% last week (which included the Thanksgiving holiday) as purchases increased 9% and refis fell 5%. Refi activity is up 100% on a YOY basis, while purchase activity is up 28% YOY.

The ADP jobs report showed the economy adding 307,000 jobs last month. Big gains were reported in leisure / hospitality, professional and business services, and social services. FWIW, the Street is looking for 500k payrolls in Friday’s jobs report, so this is a bit of a miss.

Given the ADP report, it looks like the rebound is beginning to lose some steam. This should be positive for bonds, as it will encourage the Fed to increase purchases. Note that mortgage rates continue to move lower despite the uptick in interest rates.

I think the breakdown in correlation is largely due to mortgage banks beginning to decrease margins, as well as the Fed’s purchases of MBS in the market anchoring rates. With rates in the rest of the world stuck at 0% (or even negative), I don’t think the 10 year yield will be able to generate that much momentum.