MBS Pricing Snapshot

* Biggest volume pop of the day following weaker-than-expected ISM

* Scheduled Fed "Twist" buying in 25-30 yr maturities from 10:15-11:00 helping solidify bid for long end.

* MBS and 10's both turn positive

* Fannie 3.5's up 2 ticks to 103-29 and 10's just in the green at 1.9259.

* Always some potential for volatility at 11am conclusions of Twist buying.

* Bottom line, so far so good for Bond markets thanks to the weaker ISM. Feels like we're on more neutral-to-slightly-positive footing now whereas we felt a bit on the defensive after the 8:30am data. 10am-11am events tips the scales back at least to neutral and slightly in our favor for now. Still... not expecting any extreme challenges to the week's range ahead of tomorrow's NFP.

*53.5 vs 55.5 consensus
*Employment Index down to 54.2 from 56.7
*New orders down to 53.5 from 58.8
*Prices Paid Index lowest since 7/2009

The NMI registered 53.5 percent in April, 2.5 percentage points lower than the 56 percent registered in March. This indicates continued growth this month, but at a slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 54.6 percent, which is 4.3 percentage points lower than the 58.9 percent reported in March, reflecting growth for the 33rd consecutive month.

The New Orders Index decreased by 5.3 percentage points to 53.5 percent, and the Employment Index decreased by 2.5 percentage points to 54.2 percent, indicating continued growth in employment at a slower rate. The Prices Index decreased 10.3 percentage points to 53.6 percent, indicating prices increased at a significantly slower rate in April when compared to March. According to the NMI, 15 non-manufacturing industries reported growth in April. Respondents' comments affirm the slowing rate of growth.

In addition, they remain concerned about rising fuel costs and the impact on shipping, transportation and petroleum-based product costs."

This morning's economic data was relatively unfriendly with better-than-expected Jobless Claims and lower labor costs. Even though Jobless Claims were once-again revised higher in the previous week, today's headline would have still been lower than the last week's pre-revision number, something that isn't always the case lately.

The president of the European Central Bank, Mario Draghi, began a press conference at the same time as domestic data. This is a fairly big deal as well, and likely had the potential to reverse earlier weakness in bond markets or help the trend continue. For the most part, it has done the latter.

This was specifically noticeable around 8:45Am when Draghi said that the ECB did not discuss a rate cut and that their best contribution to growth is to control inflation. That's a relatively non-aggressive stance vs the FOMC and broader markets may have been hoping for a bit more 'oomph' from Draghi today.

Treasuries and MBS have both ratcheted to weaker levels since the open, but "ratcheted" is the operative word there. It's all very incremental and regularly spaced. One could think of it as "stair steps" as well...

Whatever the case, 10yr yields remain under the moderately important 1.96 technical level, but are currently fairly close to it at 1.95. Fannie 3.5 MBS seem to be fighting off the weakness to a slightly better extent than Treasuries, down only 2 ticks at 103-25. Nominal weakness thus far, especially now that we can say "NFP Tomorrow." Keep an eye on 1.962 in 10yr yields as a pivot point and 103-22 in Fannie 3.5's.

* Productivity -0.5 vs -0.5 consensus
* Unit Labor Costs +2.0 pct vs +2.8 pct consensus

Nonfarm business sector labor productivity decreased at a 0.5 percent annual rate during the first quarter of 2012, the U.S. Bureau of Labor Statistics reported today. The decline in productivity reflects increases of 2.7 percent in output and 3.2 percent in hours worked. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the first quarter of 2011 to the first quarter of 2012, productivity increased 0.5 percent as output and hours worked rose 2.8 percent and 2.2 percent, respectively.

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers.

Unit labor costs in nonfarm businesses increased 2.0 percent in the first quarter of 2012, while hourly compensation increased 1.5 percent. Unit labor costs rose 2.1 percent over the last four quarters.

BLS defines unit labor costs as the ratio of hourly compensation to labor productivity; increases in hourly compensation tend to increase unit labor costs and increases in output per hour tend to reduce them.

*365k vs 380k consensus
*Previous week revised from 388k to 392k
*4-wk avg trending higher, but continuing claims fell 3.276 from 3.329 mln. Benefit exhaustion anyone?

In the week ending April 28, the advance figure for seasonally adjusted initial claims was 365,000, a decrease of 27,000 from the previous week's revised figure of 392,000. The 4-week moving average was 383,500, an increase of 750 from the previous week's revised average of 382,750.

The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending April 21, unchanged from the prior week.

The advance number for seasonally adjusted insured unemployment during the week ending April 21 was 3,276,000, a decrease of 53,000 from the preceding week's revised level of 3,329,000. The 4-week moving average was 3,297,000, a decrease of 18,250 from the preceding week's revised average of 3,315,250.