Rates are sharply higher this morning as guesses from bond traders are looking towards tomorrow’s Employment Report being stronger than predicted. Although not mentioned in many of the ‘wires’ the ISM-services report is also affecting rates.

ISM-Services was anticipated at 57.5 to 59.0, but was reported at 60.7.

The most important employment item was the weekly Initial Jobless Claims. But, is not getting a great deal of credit for moving rates today. It probably is not the biggest mover. It was predicted that 315k workers would file for first time unemployment insurance. The Labor Department actually reported that 318k filed.
That is obviously higher than the forecast and should have dropped rates far lower. But, economists say initial claims in the range of about 300,000 to 325,000 are consistent with job growth of about 100,000 to 150,000 per month. This is the first time that the bond market noticed this.
Consistent levels of Jobless claims atop the 350,000 mark would signal some weakening in the labor market, while a sustained drop below 300,000 could place further strain on a labor market that's already tight.

Occasionally the ADP Employment Report impact interest rates. ADP did that today. According to ADP the private sector payrolls grew by 150,000; the fastest rate in seven months. ADP does not include government jobs.

Tomorrow’s Department of Labor Payroll growth is currently forecast at 125,000 to 135,000. It does include government jobs. At this time, the concern for tomorrow's Employment Report is only coming from the bond market.  None of the sources this blog follows have changed their estimates for Payroll Job growth.  Therefore, it is probable that at least some investors will be wrong about the payrolls number. That will make tomorrow volatile.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, said ADP report confirms his expectations that payrolls will have increased by 150,000 in June.

"That said, the ADP survey has a record of occasional, but unpredictable, spectacular misses when compared to the official payroll numbers, so nothing is guaranteed," Shepherdson said.

Also, outplacement firm Challenger Grey & Christmas said U.S. corporations announced 55,726 layoffs in June, down 22% from May's figure and 17% below the figure from June 2006. The figures are not seasonally adjusted. June is traditionally a slow month for job-cutting announcements, Challenger noted

These items have all conspired this morning to move the 10-year Treasury +.077% with the rate at 5.127%.

The bond market almost always ignores the MBA Purchase Application Index. Readers of this blog still may take courage in this week’s results. It was 437.3, about average for the last couple of months. The 4-week average is holding steady at 445.45.

Steve Boxmeyer [612] 799 – 6858
steve@LendWithIntegrity.com