Wednesday's ADP National Employment report brought havoc to the market in what was expected to be a quiet, but supportive week for mortgages bounded by the Fourth of July holiday and non-farm payrolls. Concerns that Friday's employment report would be much stronger than expected sent the bond market sharply lower with the 10-year yield rising seven basis points on Wednesday from Monday's close. Thomson Finanacial/IFR economists, however, expect non-farm payrolls to be up 165,000, while the median is at 175,000. The ADP report suggests a print of 368,000 in private jobs.

The backup brought out active selling in the mortgage market from both real and fast money midweek with movement up-in-coupon in both 30s and 15s. In particular, strong bank selling was noted which is raising concerns about future large bank support for MBS. Also negatively impacting mortgages was the uptick in volaltility. The market was calmer on Thursday morning with a slightly supportive tone, which was drawing in slightly better buying from real money.

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