Market Update

FNMA 30-YR 4.0%

Previous close 98.690
Opened Up 0.16bp @ 98.844

Key Economic Data:

EUR / USD  1.3787  Down  0.0043
USD / JPY  81.4440  Up  0.0993
GBP / USD  1.6186  Up  0.0044

OIL  91.05  Up  0.28
Gold  1,377.40  Down  2.90

Key Economic News:

The Mortgage Bankers Association's index of ,mortgage applications rose 11.3%, almost erasing the 12.9% drop in the prior week. The indexes of purchase loans and refinancing both shared in the increase, advancing 9.5% and 11.7%, respectively.

Another strong labor market reading
ADP report stronger than expected in January, although December figure revised down substantially. Although its forecasting record is spotty, the report is consistent with our expectation that the trend in private-sector hiring is picking up.

Key Numbers:
ADP reports predicts 187k in private non farm payrolls for Jan vs. median forecast +140k.

Analysis:
The ADP report on private-sector payrolls by 187k in January, coming in stronger than expected. The December figure, however, was revised down by 50k to 247k. The January increase was mainly driven by higher employment at service companies (up 166k), but employment at goods-producing firms also rose (+21k). Employment in manufacturing rose by 18k. The headline increase was mainly driven by hiring at small (+97k) and medium firms (+79k); employment at large firms rose only slightly (+11k).

9:00: Quarterly refunding announcement...will they shut down the SLGS window? We expect a package of 72bn-$32bn in 3-year notes, $24bn in 10-year notes, and $16bn in 30-year bonds-to redeem $23.4bn in maturing issue and to raise $48.6bn in net cash. This represents no change from the November refunding in either the size or composition of gross issuance. We do not expect any changes in the coupon schedule, but it is possible that Treasury will use this opportunity to suspend issuance of State and Local Government Securities (SLGS) in anticipation of reaching the debt ceiling sometime this spring. Absent a major surprise from Congress on the debt ceiling, that suspension is coming as the next logical step in creating room to continue the marketable borrowing schedule. It's just a question of when.

Advice:

I believe today we will see similar trading as yesterday, again in the range of 98.626 to 99.000.

I would lock today.