The bond market shrugged off a warmer inflation outlook from the Fed yesterday and instead chose to focus on its transitory effects which include a modest contraction in economic growth prospects. We'll get a taste of that slowdown this AM when the first estimate of Q1 GDP is released at 830.

Overall the FOMC kept its policy making rhetoric on the dovish side as rates are expected to remain low for "an extended period". No voters dissented this decision. It is however clear that QEII will come to a close by the end of June, but the Fed will not begin shrinking its balance sheet until a sustained recovery is confirmed.  In his press conference Fed Chairman Ben Bernanke gave no definitive hints on another quantitative easing program, but he did express a great amount of discomfort surrounding the heightened level of uncertainty that pervades the Board's economic projections.

Benchmark TSY prices are rising this morning as stock futures stagnate after moving lower overnight. The 3.625% coupon bearing 10 year note is currently +9/32 at 102-15 yielding 3.327% (-3.2bps). S&P futures are -1.25 at 1349.50. Light crude is -0.05% at 112.71. Gold is near another record high, +0.82% at 1529.50.

FNCL 4.5s are bid 6/32 higher to 102-20....10/32 above 102-10 resistance. Yield spreads are slightly wider vs. 5pm going out marks.

Thursday:

8:30 ― The first estimate of Q1 GDP isn’t expected to be pretty. Economists expect the growth rate at just 2%, versus a 3.1% pace to end 2010, even though manufacturing had a robust quarter.

“The combined effect of weak private service consumption, a decline in non-residential construction and a wider trade deficit likely lowered growth in the quarter,” said economists at Nomura.

8:30 ― Initial Jobless Claims have come in above 400k for two consecutive weeks now, but economists hope to see a decline to 390k in the week ending April 23. The average so far in April is 401k claims per week, versus 395k in March.

8:30 ―  Federal Reserve Bank of San Francisco President John Williams and Federal Reserve Board Governor Elizabeth Duke give welcome/opening remarks before the Federal Reserve Bank of San Francisco's "The Changing Landscape of Community Development Linking Research with Policy and Practice in Low-Income Communities" 2011 Community Affairs Research Conference. No Q&A. 

10:00 ― The Pending Home Sales Index is expected to show modest gains in March, as mortgage rates improve and springtime weather induces people to look for homes.

1:00 ― Treasury auctions $29,000,0000 7-Near Notes