After the ISM Non-Manufacturing Index came in at 52.8 versus a 57.4 consensus, Stocks have fallen sharply and bonds are rapidly improving. FNCL 4.5's have cracked the 103 handle, now up 3 ticks on the day at 103-02. In terms of the amount of price gains normally needed for reprices for the better, this really isn't quite enough, but given the narrowness of the recent range and the directionality of the gains, it's possible we'd see an early reprice or two among lenders who came out with pricing earlier this morning. If a lender isn't out with pricing yet, rate sheets might be delayed as we wait for markets to settle. 10yr notes are currently testing a BREAK of the recent trend channel, 1 bp below the resistance line at 3.221.

* ISM REPORT ON U.S. NON-MANUFACTURING SECTOR SHOWS PMI AT 52.8 IN APRIL (CONSENSUS 57.4) VS 57.3 IN MARCH * ISM NON-MANUFACTURING BUSINESS ACTIVITY INDEX 53.7 IN APRIL (CONSENSUS 59.0) VS 59.7 IN MARCH * ISM NON-MANUFACTURING NEW ORDERS INDEX 52.7 IN APRIL VS 64.1 IN MARCH

After going out at 1356+ yesterday, S&P's are already down to 1351+. As this is a directional guidance giver that 10yr notes can agree with, they're running down to their bullish resistance line from the ongoing trend-channel which will be around 3.23 today. They're currently at 3.238. MBS have been more hesitant to improve, however, up only 1 tick on the day versus 10yr's 4 tick gain. FNCL 4.5's currently at 102-31+

The slow pace of downsizing continued in April, as employers announced plans to cut 36,490 jobs from their payrolls during the month, 12 percent fewer than the 41,528 job cuts announced the previous month, according to the latest report on planned layoffs released Wednesday by global outplacement firm Challenger, Gray & Christmas, Inc. The April job-cut total was down 5.0 percent from the same month a year ago, when 38,326 planned layoffs were announced. It was the lowest monthly total of the year and the third lowest over the last 16 months. Year to-date, employers announced 167,239 job cuts, 24 percent fewer than the 219,509 layoffs by the same point last year. Not only have layoffs declined, but hiring is on the rise. So far this year, employers announced plans to add 172,590 new workers, an increase of 149 percent over same period in 2010 (69,329). April hiring was dominated by the McDonald’s restaurant chain, which announced a bold plan to add 50,000 employees in one day.

* U.S. TO SELL $32 BLN 3-YEAR, $24 BLN 10-YEAR NOTES, $16 BLN 30-YEAR BONDS NEXT WEEK * U.S. QTRLY REFUNDING TOTALS $72 BLN, TO RAISE $72 BLN OF CASH * TREASURY SAYS WHEN NOTES, BONDS FROM REFUNDING SETTLE MAY 16, DEBT LIMIT WILL BE REACHED, EXTRAORDINARY CASH MANAGEMENT MEASURES WILL NEEDED * TREASURY SAYS IF DEBT LIMIT IS NOT INCREASED BY AUG 2, SOME ALTERATIONS TO AUCTION SCHEDULE SHOULD BE EXPECTED * U.S. TREASURY SAYS BASED ON PROJECTIONS, EXPECTS NOMINAL COUPON AUCTION SIZES TO REMAIN STEADY DURING QUARTER * ADVISORY COMMITTEE SAYS BASED ON ECONOMIC UNCERTAINTY, MATURING DEBT NEXT YEAR, TREASURY SHOULD KEEP COUPON ISSUANCE STEADY * TREASURY OFFICIAL SAYS CONFIDENT THAT CONGRESS WILL RAISE DEBT LIMIT, BUT CONTINGENCY PLANS ARE IN PLACE * ADVISORY COMMITTEE SAYS ANY REDUCTIONS IN MARKETABLE BORROWING SHOULD OCCUR IN T-BILLS * ADVISORY COMMITTEE FEELS FURTHER EXTENSION OF AVERAGE MATURITY OF GOVT DEBT FROM 61 MONTHS IS WARRANTED * TREASURY OFFICIAL SAYS DECIDED AGAINST CUTTING AUCTIONS SIZES AT THIS TIME, SAYS THAT WOULD BE HIGHLY DISRUPTIVE TO MARKET * U.S. TREASURY SAYS MAY ISSUE CASH MANAGEMENT BILLS DURING THE QUARTER

Barclays Capital recently noted that Non-agency prepayment rates continue to fall as the rate incentive dies out, and credit availability remains very restricted. That said, refinancing opportunities beyond GSE loans for high quality borrowers have expanded over the past several quarters. Barclays finds, what lenders already have seen, that an increasing number of borrowers are putting additional cash into their existing mortgage to refinance into a new one. This explains higher prepayment rates from higher LTV loans than could be expected based on GSE/FHA guidelines. "We use updated consumer financial information from Equifax to incorporate the latest credit scores, true occupancy, and adjusted CLTV into eligibility estimates. We define a three-tier refi eligibility metric to rate pools: refi-able (effective GSE and FHA eligible and high-quality private lending eligible with positive rate incentive), non-refi-able (high CLTV, dirty payment history or modified) and borderline (everything in between). Seasoned jumbo fixed rates have the highest proportion of refi-eligible loans and the lowest proportion of ineligible, whereas the numbers are reversed for subprime. We expect the top refi-eligible tier to continue to have credit available across home price and regulatory scenarios; the bottom tier will find it hard to refinance even in much improved economic scenarios. Middle tier borrowers will drive all of the prepayment variations in coming years. Our base expectation is for a gradual improvement in credit availability that improves non-agency prepayments in the coming years."

* ROSENGREN SAYS HOUSING SECTOR NOT IMPROVING AS FAST AS FED HAD HOPED * ROSENGREN SAYS BANK LENDING DATA "REMAINS QUITE WEAK," NOT SENDING INFLATIONARY SIGNAL * ROSENGREN SAYS LOWER U.S. DOLLAR NOT HAVING A BIG IMPACT ON DOMESTIC INFLATION * ROSENGREN SAYS IF U.S. FISCAL POLICY TIGHTER, MONETARY POLICY NEEDS TO BE MORE ACCOMMODATIVE FOR LONGER PERIOD

CitiMortgage (#4 lender in the 4th quarter with a 4% market share) announced it is laying off 400 employees who work in its loan sales and fulfillment operations in five cities (O'Fallon, Dallas, San Antonio, Ann Arbor, Mich., and Las Vegas) due to declining demand for mortgages. "Due to ongoing challenges in the housing industry, including decreased consumer demand for new mortgages and refinancing, CitiMortgage is reducing its loan sales and fulfillment staffs by roughly 400 positions," CitiMortgage's spokesman Mark Rodgers said in a statement. "This will allow the company to better align staffing with current business needs." http://www.stltoday.com/business/local/article_94d3a2b4-710b-11e0-9f37-001a4bcf6878.html?

When an originator locks a loan with an investor on a best-efforts basis, and the loan funds, they deliver it (one assumes). If the loan doesn't close, they have nothing to deliver, and there is no penalty (within certain limits). When secondary locks a loan with an investor on a mandatory basis, and it funds, the originator delivers it, and when it doesn't fund, the originator is "on the hook" to the investor and owes a penalty. Of course, both parties attempt to negotiate penalties, trying to stay away from talk of "broken thumbs" and "first born male children", but those are the basics. The Treasury Market Practices Group, which the Federal Reserve Bank of New York helped form in 2007 to offer advice on debt markets, proposed "fail" charges similar to those for U.S. government bonds. Dealers and investors that fail to complete trades in agency debt and mortgage bonds may pay as much as 3% in penalties. Interestingly, near-0% overnight interest rates has encouraged failures by reducing the cost of uncompleted trades, while at the same time the Fed's purchase of $1.25 trillion of mortgage bonds through March 2010 made it more difficult to find bonds to settle contracts in a timely manner. The press released noted, "Uncompleted trades in agency mortgage securities remain elevated after rising to a record of almost $2.4 trillion during a week in November, according to Fed data. Failures to receive or deliver the securities, which totaled $1.5 trillion in the week ended April 20, averaged about $330 billion weekly over the past 10 years." Not so fast, say some investors including PIMCO, who say 3% will reduce intentional fails but sharply reduce liquidity and incent accounts to attempt short squeezes - 1% is better. Do I hear 2%? Public comments are due by 6/10, with any changes expected in 2012. At this point dealers are not expecting much impact, as some kind of charge is anticipated by the market. :http://www.mortgagenewsdaily.com/mortgage_rates/blog/160913.aspx

Much like we saw yesterday, 10yr note yields have mostly tracked with stock prices except when doing so would have them break outside their bullish trend channel. 10's bounced at 3.269 earlier this morning without receiving an indication to do so from stocks. The bounce fell exactly on the upper line of the trend channel. There's a better chance over the next 2 days before NFP of the channel being broken, but it appears techs are still in play for now. 10's are currently at 3.2601. FNCL 4.5 MBS are down 1 tick at 102-30 which should make for relatively similar loan pricing to yesterday, or perhaps a few bps worse. Next Econ data at 10am with ISM-Non-Manufacturing.

08:15 - ADP NATIONAL EMPLOYMENT REPORT SHOWS U.S. EMPLOYMENT INCREASED BY 179,000 PRIVATE SECTOR JOBS IN APRIL.REUTERS CONSENSUS FORECAST FOR ADP PAYROLL CHANGE FOR APRIL WAS FOR INCREASE OF 198,000 JOBS. From the release: While employment accelerated sharply around the turn of the year, the monthly gains have been holding fairly steady around 200,000 since then. Employment growth at this pace is consistent with only modest declines in the unemployment rate. April’s ADP Report estimates employment in the service-providing sector rose by 138,000, marking 16 consecutive months of employment gains. Employment in the goods-producing sector rose 41,000, the sixth consecutive monthly gain, while manufacturing employment rose 25,000, the seventh consecutive monthly gain. Employment among large businesses, defined as those with 500 or more workers, increased by 11,000, while employment among medium-size businesses, defined as those with between 50 and 499 workers, increased by 84,000. Employment for small businesses, defined as those with fewer than 50 workers, rose 84,000 in April.* In April, employment in the construction industry increased 9,000, only the second monthly increase since June 2007. Since December 2010, however, construction employment has, on balance, risen, suggesting that finally employment in this sector has bottomed out. The total decrease in construction employment since its peak in January 2007 is 2,115,000. Employment in the financial services sector increased 4,000 in April.