Morning data is behind us and the market is making an originator unfriendly directional move.

Both ADP Private Payrolls and ISM Non-Manufacturing were better than expected. HERE is a recap of ADP Data. Below is brief recap of ISM Non-Manufacturing...

10:00 04Aug10 RTRS-TABLE-U.S. ISM non-manufacturing index 54.3 in July
10:00 04Aug10 RTRS-ISM NON-MANUFACTURING PRICES PAID INDEX 52.7 IN JULY VS 53.8 IN JUNE
10:00 04Aug10 RTRS-ISM REPORT ON U.S. NON-MANUFACTURING SECTOR SHOWS PMI AT 54.3 IN JULY (CONSENSUS 53.0) VS 53.8 JUNE
10:01 04Aug10 RTRS-ISM NON-MANUFACTURING EMPLOYMENT INDEX 50.9 IN JULY VS 49.7 IN JUNE
10:01 04Aug10 RTRS-ISM NON-MANUFACTURING NEW ORDERS INDEX 56.7 IN JULY VS 54.4 IN JUNE
10:04 04Aug10 RTRS-ISM NON-MANUFACTURING EMPLOYMENT INDEX IN JULY HIGHEST SINCE DECEMBER 2007

Plain and Simple: Non-Manufacturing ISM, the services sector of our economy, looks to be doing just fine. Because the services sector represents the majority of economic activity in the US, traders will lean on this data as a counterargument to double-dipper ax grinding.

Stocks broke overnight highs following ADP (levels not visited since June) and have since fallen back into the overnight range. S&Ps are currently +0.50 at 1118.75. If equities move even higher I would expect a retracement in the near future (retest lower levels again).

The  Euro/Dollar pair looks to be providing leadership in risk markets, it fell from 1.322 to 1.314 after ADP. If the Euro can stabilize at 1.314 we should see stocks retest overnight highs.

10yr note yields traded up on the news but did not break the session high's seen yesterday. The 3.50% coupon bearing 10 year TSY note is currently -0-06 at 104-26 yielding 2.93% (+2.2bps). After making a strong run yesterday and Monday, Treasuries are due some profit taking. Play the Range Until the Range Plays You! Anything below 2.90% is the very low side of the range. The belly of the curve is the weakest spot. 5s are up 5.4bps and 7s are +4.1bps in yield. Inventory Distribution Done? The 2s/10s curve is off its flattest  levels of the week, now UNCH on the day at 237bps and looking to go steeper.

Volume is picking up into this sell off so watch for a break of 2.94% support and a possible retest of 2.96%.

Mortgages gapped out to week over week yield spread wides early in the session but have since started to tighten vs. TSYs and widening swap spreads in the long end of the curve. Price levels are however moving lower as we are play follow the leader with related markets (aka take profits in one-way flows!Bid Wanted) That means MBS prices will continue to fall if benchmarks don't find stable footing soon. The Sept FNCL 4.0 is currently -0-03 at 101-27. The Sept FNCL 4.5 is -0-03 at 104-06. The secondary market current coupon is 2bps higher at 3.703%.

The Sept FNCL 4.0 finds support at 101-24. If that level is broken, expect some reprices. In terms of the August FNCL 4.0 coupon, look for reprices for the worse around 102-06.

Loan pricing may be delayed as a result of this directional move lower. I will keep you updated in the comments....