Good Morning.

Patrick summed up morning developments pretty well:

The stock market is indicated lower this morning as investors remain weary about Europe’s debt crisis. Overnight, Japanese GDP rose at a slower-than-expected annualized rate of 4.9% in the first quarter, a Chinese finance minister called for the U.S. to bring its budget deficit under control, Spain issued 10-year bonds at 4.05% — the highest yield of any 10-year auction since April 2009, Greek workers are protesting austerity again, and rumors are circulating that all EU members will adopt Germany's ban on naked short selling.

Weekly Initial Jobless Claims data has been released....

Jobless Claims:  +25,000 to 471,000 vs. 440,000 forecast  vs. previous 446,000 (revised from 444,000) WORSE THAN EXPECTED
Continued claims:  -40,000 to 4.625mln vs. 4.60mln forecast vs. previous 4.665mln (revised from 4.627mln) WORSE THAN EXPECTED
Extended Benefits: +21,419 to 240,260 vs. prior 218,841
Emergency Unemployment Claims: -94,788 to 5,101,246 vs. prior 5,196,034

This jobless claims report will be scrutinized more than the previous report because the data is taken from a week which included the 12th day of the month. This is important because the BLS and Census Bureau generally conduct their surveys for the official Employment Situation Report in the week that contains the 12th day of the month or the pay period including the 12th. That said, this worse than expected jobless claims print increases the possibility that the May Employment Report will less positive than the April release. 

Risk is clearly being avoided and profits are being taken after the data. Oil is down almost 3.00% (June contract expires today), Gold is off more than 1.00%, S&P futures are down 23pts, the Euro bounced at 1.23 support, and interest rates are lower.

Below is a Euro chart. Notice the line in the sand at 1.23 vs. the USD.

Stocks have disconnected from the forex lever for the moment thanks to big declines in commodity prices. The S&P will open below the 200 day moving average. This is also important because the S&P has fallen 10% since hitting 1220 in later April. This is important because it forces traders to re-evaluate long term outlooks. TIME TO DO SOME BARGAIN BUYING OR WAIT IT OUT FOR A BETTER ENTRY POINT?

The 3.50% coupon bearing 10 year Treasury note is trading +0-27 at 101-30 yielding 3.271%. The 10yr yield is 9.9 bps lower this morning.

The FN 4.0 is +0-11 at 99-18 and the FN 4.5 is +0-09 at 102-07 yielding 4.246%. The secondary market current coupon is 5bps lower at 4.118%. The current coupon is 84.7 basis points over the 10 year Treasury note yield and 78.2 basis points over the 10 year interest rate swap. Yield spreads are wider as Treasuries rally on.

Shifts in the value of global currencies, rising short term bank funding costs (LIBOR), and general political uncertainties (here and abroad) continue to be the main sources of consideration for traders. The longer this "crisis" carries out, the more it will be viewed as a global pandemic by market participants. Interest rates continue to benefit from a flight to quality. Floating from here will see less and less returns as MBS yield spreads will continue to widen against benchmark yields.

NEXT EVENT: The German parliament votes tomorrow on the nation’s potential €150 billion contribution to the euro-zone bailout package. READ MORE

HOW IS BUSINESS EVERYONE? I know the tax credit added a few loans to your pipeline. But are these deals closing? How are your turn times? Are you seeing any new purchase demand? Who is asking for a refinance? Borrowers you closed last year? ARM borrowers? Fence sitters who never came off the fence?