Good Morning. I need everyone to say a prayer for my dog. She is having surgery today to remove a tumor on her left shoulder. My stomach is in knots...gotta get the cancer out though.

Jobless Claims data has been released.

Initial Jobless Claims rose by 18,000 to 460,000 in the week ending April 3, 2010. This is much worse than the consensus forecast of 435,000.  Last week's number was revised for the worse from 439,000 to 442,000. The 4-week moving average of new jobless claims rose to 450,250 from 448,000 (revised higher from 447,250).

Continued Claims  fell to 4,550,000 from 4,681,000. This beat consensus estimates which called for 4,650,000 continued claims.

Extended/Emergency benefits totaled 5,807,877...this is a week over week decline of 223,450. Extended benefits were higher while emergency benefits fell.

The largest increases in initial claims for the week ending March 27 were in Texas (+3,640), Oregon (+2,412), New Jersey (+1,715), California (+1,275), and Kentucky (+926), while the largest decreases were in Michigan (-2,240), Illinois (-1,872), Oklahoma (-1,270), Missouri (-1,079), and North Carolina (-673).

Here is a table recapping recent reports:

Plain and Simple: while jobless claims are considerably lower than the worst levels of 2009,  positive progress appears to have stalled. We would like to see weekly claims fall below 400,000.

The 10yr note moved sideways in heavy trading flows last night, close to the best levels of yesterday's session. This basically confirms yesterday's positive price action and is another step toward testing the waters of a recovery rally back into the 3.57- 3.85% range.  :-D

Following 830am data, the 3.625% coupon bearing 10 year TSY note managed to break through overnight resistance levels. Profits are being consolidated now, the next move will be a a test of 3.85%. 10s are currently +0-03 at 98-04 yielding 3.853%. 

The entire MBS stack had a great day yesterday thanks to broad based buying from accounts of all types. This increase in demand helped offset about 1.5 billion in new originator supply. PHEW!!! Normally this is a role the Fed would assume.  One week removed from the MBS purchase program, it is reassuring to see support coming from non-Fed investors. Secondary market current coupon yield spreads tightened for the majority of the day, however I show relative value cheapening up into 5pm "going out" marks(nominally). The CC was +64.2bps/10yr TSY's and +65.7bps/10yr IRS.  HIGHER MORTGAGE RATES ARE NOT THE FED'S FAULT

 "Rate sheet influential" MBS coupons are opening the day higher in price and tighter in yield spread (correcting late afternoon spread loosening). The FN 4.5 is +0-02 at 100-04 yielding 4.492%. The secondary market current coupon is 4.49%. The secondary market current coupon is +63.5bps/10yr TSY yield and +65.3/10yr IRS.

REPRICES FOR THE BETTER CONSIDERED AROUND 100-12

REPRICES FOR THE WORSE CONSIDERED AROUND 99-26

You know the story. We forecast a test of 4.00% back in December. That test happened  in extremely illiquid quarter-end conditions after a run of better than expected econ data and three sloppy Treasury auctions. When Q1 came to a close and global markets went back to work after holiday, those yields were seen as a big bargain buy....selling stopped out and rates reversed course. 4.00% support held steady. Now bullish momentum is building and 10s are testing the 3.57 to 3.85% range again.

The outperformance seen in current coupon MBS yesterday while Treasuries rallied is not a normal event (it was when the Fed was buying mortgages though!) Usually, "rate sheet influential" MBS coupons are unable to keep pace as benchmarks rally. However, broad based MBS buying throughout the day yesterday helped mortgages (specifically mortgages) rally on their own (tighter yield spreads). This will not happen every time TSYs rally. With that in mind, going forward if TSY yields do continue to fall, do not expect mortgage rates to decline in step like they did when the Fed was buying MBS.

My point: there will be a disconnect/lag in MBS valuations into TSY rallies, so don't get frustrated with lenders for delaying rebate improvements!

We continue to float through this one day at a time. Cautiously. Defensively.

NEXT EVENT: 30 YEAR BOND AUCTION. All focus on the long bond.