Good Morning All.

Yields are lower this morning following a worse than expected read on the labor market.

JOBLESS CLAIMS ROSE TO 480,000. HIGHER THAN CONSENSUS 465,000. UP FROM PRIOR WEEK 473,000
JOBLESS CLAIMS 4-WK AVG FELL TO 467,500 FROM 472,750 PRIOR
US CONTINUED CLAIMS ROSE TO 5.186 MLN. HIGHER THAN CONSENSUS 5.15 MLN. UP FROM PRIOR WEEK 5.181 MLN
INSURED UNEMPLOYMENT RATE UNCH AT 3.9 PCT DEC 5 WK FROM 3.9 PCT PRIOR WK (PREV 3.9)
JOBLESS CLAIMS 4-WK AVG LOWEST SINCE 460,250 IN SEPT 20, 2008 WEEK

After the release, 10s recovered all of yesterday's post FOMC knee jerk move higher. 10s are heading back towards 3.50%...in VERY LIGHT VOLUME. This is most likely a function of SHORT COVERING after the data. Again, illiquid trading conditions can create a false sense of security, don't get too cozy with these gains yet, those "BLACK BOX" traders I discussed in yesterday's MBS LUNCH have been selling into strength.

The long end of the yield curve, which has taken a beating over the course of the month, is outperforming the short end. Yay! Not really, 2s/10s are still near 275bps. That is very STEEP. 

The move lower in TSY yields has served to push "rate sheet influential" MBS prices higher.

The FN 4.0 is currently +0-16 at 98-19 and the FN 4.5 is +0-13 at 101-10. This is juuuust about where gains would be expected to top out....about 2,000 trades in the TBA MBS market so far this morning. Again...dont get too comfy with these gains just yet. I would really like to see more participation from the marketplace...doubtful though, most money (that moves in size) is in a year-end holding pattern already.

Just wanted to point this out...check out the dollar. That rally I called attention to last week has materialized. (Tough call huh?)

Here's what lies ahead:

10:00am Phily Fed Index (Dec.) +16.0 (expected on consensus) vs. +16.7 (prior); Leading Indicators (Nov.) +0.7% (expected on consensus) vs +0.3% (prior);  FHLMC weekly Primary Mortgage Market Survey on mortgage rates (30yr & 15yr fixed, and adjustables)

3pm New York Federal Reserve weekly recap (week ending 12/16) of Agency MBS agency Purchase Program

 FED SPEAK- 9:30am Federal Reserve Chairman Bernanke's confirmaton vote held in Senate Banking Committee in Washington, D.C.

1pm Dallas Federal Reserve President Fisher (non-voter) speakson global economy in Litlle Rock, Arkansas

If you are interested, Fannie published their December 2009 economic outlook yesterday (eventhough the month is half over). They think the 10yr note goes down to 3.33% in Q1 2010, exactly the opposite of what I am expecting. READ MORE