• MBS were down 39 bps on the AM, while stocks have lost 31.5 points.
• Fitch Ratings downgraded the U.S.’s credit rating from AAA to AA+, but this will have minimal negative impact.
• ADP Employment came in at 324k, beating expectations of 189k. However, this is not getting as much attention as last month’s ADP data, which was later revised down significantly.
• Wage growth continued to decelerate, with workers who stayed in their jobs experiencing a 6.2% pay increase in July from a year ago.
• The scheduled unveiling of new Treasury auction amounts has been met with a bit of additional weakness in bonds. Plans are much higher than estimated, with $1T to be raised July-thru-September (from $750b expected).
• July saw $95.6 billion of MBS slide out of the factory, a 7.8% decrease from June’s $103.8 billion.
• Bond yields spiked to their highest levels in more than 8 months this morning following another upbeat ADP report. However, this was mostly due to the Treasury refunding announcement, which included higher than expected auction sizes and a lighter buyback program.
• At the close, MBS lost 17 bps at 98.69. Stocks lost 63 points.

Here are some additional thoughts:

• The downgrade of the U.S.’s credit rating is a significant event, but it is unlikely to have a major impact on the mortgage market in the short term.
• The ADP report was stronger than expected, but this was not enough to offset the negative impact of the Treasury refunding announcement.
• The deceleration in wage growth is a positive development for borrowers, as it could help to keep mortgage rates in check.
• The decline in MBS issuance is a sign that the mortgage market is slowing down, but it is not necessarily a sign of trouble.

Overall, the mortgage market is still functioning well, but there are some signs that it is starting to cool off. It will be interesting to see how the market reacts to the upcoming FOMC meeting and the release of the July jobs report.