Morning Report - What is going on with mortgage rates?

Vital Statistics:

	Last	Change	Percent
S&P Futures	1625.1	-6.1	-0.37%
Eurostoxx Index	2723.4	-32.3	-1.17%
Oil (WTI)	93.76	0.5	0.48%
LIBOR	0.274	0.001	0.18%
US Dollar Index (DXY)	82.58	-0.192	-0.23%
10 Year Govt Bond Yield	2.12%	-0.02%
Current Coupon Ginnie Mae TBA	101.8	0.0
Current Coupon Fannie Mae TBA	100.3	-0.8
RPX Composite Real Estate Index	201.8	0.4
BankRate 30 Year Fixed Rate Mortgage	4.16

Markets are weaker after a disappointing ADP report. Nonfarm productivity was revised downward to .5% while unit labor costs fell. The Fed will release its Beige Book later on this afternoon. Mortgage applications fell 11.5% last week. Bonds and MBS are up small on the data.

The ADP report is supposed to foreshadow Friday's all-important jobs report, albeit only the private sector portion. Basically take the jobs report, subtract out public sector workers, and you have ADP. The ADP employment change report came in at 135,000 vs expectations of 165,000. Friday's payroll report is expected to be 178,000, with an unchanged unemployment rate of 7.5%. Bonds spiked on the ADP number and have pretty much given it all back. I am struggling to come up with a scenario where bonds rally big on Friday. My guess is that it will take an increase in the unemployment rate (like 7.7%) and a lousy payroll number, like 50k. The bond market increases so grudgingly, it feels like it won't take much of an upside surprise to send it lower.

I first thought it was a data error, or a misprint. On Friday, the Bankrate US Home Mortgage 30 year Fixed National Average spiked from 3.9% to 4.1%. But it increased again on Monday and Tuesday and now is sitting at 4.16%. Over that period, the 10 year is unchanged, but the FNCL 3.5 TBA is down a point, which corresponds to a 22 bp increase in yield. The GNSF 3.5 is down 14 ticks, which corresponds to a 10 basis point increase in yield. So how do we get a 26 basis point increase in mortgage rates when Fannies are up 22bps and Ginnies are up 10?  And no, its not jumbos, which only increased 4 basis points. Strange things are afoot at the Circle K.