We're now seeing the extent to which fear of European periphery contagion has recently been buoying bond prices. After the IMF released comments with a generally favorable tone regarding Spain and Portugal, including a confirmation that it has not received a request for financial assistance from Portugal, bonds weakened at their fasted pace of the week, moving from 3.43 to 3.48 in less than 5 minutes. MBS prices followed suit with FNCL 4.5's down 8 ticks from the most recent high. Current prices are down 4 ticks on the day at 101-23. Any lenders who priced at or before 10:30am are likely considering reprices for the worse unless things turn around quickly and at least to the tune of 101-26.

*** IMF HAS NOT HAD REQUEST FOR FINANCIAL ASSISTANCE FROM PORTUGAL-IMF SPOKESWOMAN *** PORTUGUESE AUTHORITIES ARE FACING 'DIFFICULT SITUATION' - IMF SPOKESWOMAN *** PORTUGAL ECONOMIC REFORM PROGRAM, FISCAL CONSOLIDATION ARE IMPORTANT STEPS THAT NEED TO BE CONTINUED-IMF *** IMF-ENCOURAGED THAT PORTUGAL'S MAIN POLITICAL PARTIES HAVE EXPRESSED SUPPORT FOR EU-AGREED FISCAL GOALS *** SPAIN'S ECONOMIC FUNDAMENTALS ARE DEFINITELY 'MOVING IN THE RIGHT DIRECTION'-IMF SPOKESWOMAN *** SPAIN'S FISCAL, FINANCIAL REFORM MEASURES 'SEEM TO HAVE BORNE SOME FRUIT IN MARKETS'-IMF SPOKESWOMAN

Treasuries have backed up aggressively since 10am with yields moving from 3.42 in 10yr notes to 3.454. FNCL 4.5's are now down 1 tick on the day to 101-26. Any lenders who released rates early are at risk of repricing for the worse.

*** FACTORY ORDERS -0.1 PCT (CONSENSUS +0.5 PCT) VS JAN +3.3 PCT (PREV +3.1 PCT) *** DURABLES ORDERS REVISED TO -0.6 PCT FROM -0.9 PCT *** NONDEFENSE CAP ORDERS EX-AIRCRAFT REVISED TO -0.7 PCT FROM -1.3 PCT *** FACTORY ORDERS EX-TRANSPORTATION +0.1 PCT VS JAN +0.7 PCT (PREV +0.7 PCT) *** FACTORY ORDERS EX-DEFENSE +0.5 PCT VS JAN +3.0 PCT *** NONDURABLES ORDERS +0.3 PCT VS JAN +3.0 PCT *** COMPUTERS/ELECTRONIC PRODUCTS ORDERS +0.1 VS JAN -5.2 PCT *** TOTAL MANUFACTURING INVENTORIES +0.8 PCT VS JAN +1.5 PCT *** INVENTORIES/SHIPMENTS RATIO 1.26 MONTHS' WORTH VS JAN 1.25 MONTHS

*** CHICAGO PURCHASING MANAGEMENT INDEX 70.6 IN MARCH (CONSENSUS 70.0) VS 71.2 IN FEBRUARY *** CHICAGO PURCHASING MGMT NEW ORDERS INDEX 74.5 IN MARCH VS 75.9 IN FEBRUARY *** CHICAGO PURCHASING MANAGEMENT PRICES PAID INDEX 83.4 IN MARCH VS 81.2 IN FEBRUARY *** CHICAGO PMI EMPLOYMENT INDEX 65.6 IN MARCH VS 59.8 IN FEBRUARY *** CHICAGO PURCHASING MANAGEMENT PRODUCTION INDEX 74.2 IN MARCH VS 78.2 IN FEBRUARY *** CHICAGO PURCHASING MANAGEMENT EMPLOYMENT INDEX HIGHEST SINCE DEC 1983 *** CHICAGO PURCHASING MANAGEMENT PRICES PAID INDEX HIGHEST SINCE JULY 2008

This headline just crossed newswires.....RTRS-PIMCO'S EL-ERIAN SAYS WILL "REVISIT" DECISION TO DUMP U.S. TREASURIES IF THEY GET CHEAPER.....(Reuters) - PIMCO would reconsider buying back U.S. government debt, including Treasuries, if the Newport Beach, Calif. firm sees value in them again, co-chief investment officer Mohamed El-Erian said on Thursday. El-Erian, who helps oversee $1.1 trillion at PIMCO, the world's largest bond fund manager, said his firm decided to sell out its position in U.S. Treasuries last month because "there was better value elsewhere." "If the valuations of Treasuries get cheaper, we will revisit that" decision, El-Erian said at the Reuters Newsmaker event. (Reporting by Jennifer Ablan and Walter Brandimarte; Editing by Theodore d'Afflisio)

If you're wondering why PIMCO is selling their Treasury holdings. Here's why: (Bloomberg) - Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said Treasuries “have little value” because of the growing U.S. debt burden. The U.S. has unrecorded debt of $75 trillion, or close to 500 percent of gross domestic product, counting what it owes on its bonds plus obligations for Social Security, Medicare and Medicaid, Gross wrote in his monthly investment outlook. The U.S. will experience inflation, currency devaluation and low-to- negative interest rates after accounting for consumer-price gains if it doesn’t reform its entitlement programs, he said. Pimco “has been selling Treasuries because they have little value within the context of a $75 trillion total debt burden,” Gross wrote in the report published on Newport Beach, California-based company’s website. Congress “must make ‘debt’ a four-letter word.” The comment echoes Warren Buffett, the billionaire investor who recommended avoiding long-term fixed-income bets in U.S. dollars because the currency’s purchasing power will drop. Treasuries have handed investors a 0.1 percent loss this quarter, adding to a 2.7 percent decline in the final three months of 2010.

After Jobless Claims came in slightly higher than expected, bonds have accelerated the rally that began yesterday. FNCL 4.5's are already up 4 ticks to 101-30 and 10yr notes are 3.33 bps lower at 3.4107. This puts 10's in the thick of a band of yields that has been technically significant over the past two months, having seen among the highest incidence of support and resistance bounces.

(Reuters) - Tightly controlled exchange rate regimes are the main flaw in the international monetary system and the solution is simple, U.S. Treasury Secretary Timothy Geithner told a G20 meeting on Thursday. In a thinly veiled swipe at the Chinese hosts of the seminar of the Group of 20 wealthy and developing economies, Geithner said that countries should have flexible exchange rates and permit free flows of capital to be major players in the global currency order. He also used his speech to call for a stronger International Monetary Fund and to defend U.S. policies, acknowledging that past failures had caused much damage but saying the government was aiming to stabilize debt levels to avoid future problems. The G20 seminar was spear-headed by France, which is pushing a bold reform agenda in its year-long presidency of the group, and was meant to be focused on ills in the monetary system. Geithner offered a straightforward diagnosis. While major currencies moved freely and most emerging economies were well along that path, there were still some with little exchange rate flexibility and extensive capital controls, he said. This asymmetry fueled inflation risks in the economies whose exchange rates are undervalued, magnified currency appreciation in others and also generated protectionist pressures, he added. "This is the most important problem to solve in the international monetary system today. But it is not a complicated problem to solve," he said, according to the prepared text of his remarks.

*** JOBLESS CLAIMS FELL TO 388,000 MARCH 26 WEEK (CONSENSUS 380,000) FROM 394,000 PRIOR WEEK (PREVIOUS 382,000) *** JOBLESS CLAIMS 4-WK AVG ROSE TO 394,250 MARCH 26 WEEK FROM 391,000 PRIOR WEEK (PREVIOUS 385,250) *** CONTINUED CLAIMS FELL TO 3.714 MLN (CON. 3.700 MLN) MARCH 19 WEEK FROM 3.765 MLN PRIOR WEEK (PREV 3.721 MLN) *** INSURED UNEMPLOYMENT RATE UNCHANGED AT 3.0 PCT MARCH 19 WEEK (PREV 3.0 PCT) *** CONTINUED CLAIMS LOWEST SINCE OCT 2008