Treasuries and mortgages being hit early this morning on news that the US and five other central banks injected liquidity into markets in move to lower currency swap rates. The move is aimed at easing strains in markets and boosting the central banks' capacity to support the global financial system. The interest rate has been reduced to the dollar overnight index swap rate plus 50 basis points, or half a percentage point, from 100 basis points, and the program was extended to Feb. 1, 2013, the Fed said in a statement in Washington. European stocks extended their gains, the euro advanced against the dollar; treasuries and MBSs fell after the announcement. With the program, the Fed lends dollars to the ECB and other central banks in exchange for currencies including euros. The central banks lend dollars to commercial banks in their jurisdictions through an auction process.

The next hit to the bond market came at 8:15 on the ADP employment report; ADP was widely expected to report non-farm private jobs at +125K to +130K. ADP said private jobs increased 206K. Analysts are now re-working their estimates for job growth when the BLS employment report is released on Friday morning. Prior to the report estimates were for an increase of 150K private jobs from the BLS. Last month, ADP's initial figures showed a 110,000 gain for October, while the Labor Department's data two days later showed an increase of 104,000 in private payrolls.

At 8:30 Q3 productivity was revised to +2.3% frm +3.1% and Q3 unit labor costs were revised to -2.5% frm -2.4%. With the liquidity injection and the ADP the data was pushed into the background.

Prior to the actual open of stocks the DJIA at 9:00 was +275. The 10 yr note at 9:00 -28/32 at 2.08% above its 20 and 40 day moving averages. Mortgage prices at 9:00 -6/32 (.18 bp) frm yesterday's close. As the case has been, the volatility in the rate markets is confined mainly to treasuries. Treasuries have been highly volatile over the past three months as European leaders tried to convince investors that nations in the region will be able to pay their debts. The U.S. 10-year yield rose to 2.42% on Oct. 28, after reaching a record low 1.67% on Sept. 23.

By 9:30 the 10 yr note which hit 2.10% early on was back to 2.06 and mortgage prices moved back to unchanged after being down 10/32 (.31 bp) at 8:30. The DJIA opened +243, the 10 yr at 2.06% and mortgage prices -4/32 (.12 bp).

At 9:45 the Nov Chicago purchasing mangers' index, expected at 59.0 frm 58.4, jumped to 62.6; the components, employment at 56.9 frm 62.3, new orders 70.2 frm 61.3 and prices pd 60.2 frm 66.0. The headline much better than thought and added to the ADP jobs report pushed the DJIA to +388 at 9:50.

At 10:00 Sept pending home sales, contracts signed but not yet closed, was thought to be +0.1%. NAR reported pending sales jumped 10.4%; yr.yr pending sales +9.6%. More positive news.

Later this afternoon (2:00 pm) the Fed will release its Beige Book, the Fed's detailed economic report from all 12 Fed districts. Normally not much in it that markets are not already aware of but at times the details do attract interest. In this case it probably won't will all attention on the employment report on Friday and the continual unfolding drama out of Europe.

Some positive movement in the world of central banks, better job growth than thought and the regional Chicago PM index all combine to send equity indexes roaring higher and pushing treasury interest rates higher. We have mentioned numerous times over the last couple of months that US long term rates would find it a huge hill to climb to trade for any extended time under 2.00%. The 10 yr, driver for mortgages, has tried a number of times since Sept to hold under 2.00% but has not been able to hold. We believe US long term rates are about as low as they may fall based on the present fundamentals. That said, Europe is a time bomb, if defaults actually occur it would change our outlook; until then at the 2.00% area is about the best we expect.