(Reuters) - U.S. job openings in February were the most in nearly 2-1/2 years, a government report showed on Wednesday, indicating an improvement in labor market conditions. Job openings -- a measure of labor demand -- rose 352,000 to 3.1 million, the highest level since September 2008, the Labor Department said in its monthly Job Openings and Labor Turnover Survey on Wednesday. "Today's report reflects continued improvement in the labor market," said Theresa Chen, an economist at Barclays Capital in New York. "Although skills mismatch is still likely an issue at this point in the recovery, the increase in the availability of jobs should foster further improvement in the employment outlook."

Reprices for the better continue to be possible, or even likely, especially from lenders who have not yet repriced for the better. At 101-14, FNCL 4.5's are at their best levels of the day. Neither MBS nor TSYs have deviated much from recent levels. The 10yr is at 3.472 currently and hasn't been higher than 3.485 since just after the auction.

RTRS-U.S. FED'S BEIGE BOOK SAYS U.S. ECONOMY CONTINUED TO IMPROVE SINCE LAST REPORT IN EARLY MARCH. RTRS-FED SAYS MANY DISTRICTS DESCRIBED IMPROVEMENTS AS ONLY MODERATE, BUT GAINS WERE WIDESPREAD ACROSS SECTORS. RTRS-FED-MANUFACTURING CONTINUES TO LEAD RECOVERY; EVERY DISTRICT CITED EXAMPLES OF STEADY IMPROVEMENT, OFTEN WITH INCREASED HIRING RTRS-FED-WAGE PRESSURES MOSTLY SEEN AS WEAK OR SUBDUED, BUT HIGHER COMMODITY COSTS PUTTING INCREASING PRESSURE ON PRICES. RTRS-FED-BUSINESSES MOST OFTEN CITED HIGHER ENERGY PRICES, BUT SAW RAW MATERIALS COSTS AS AN INCREASING AREA OF CONCERN. RTRS-FED-MANUFACTURERS SEEING LESS RESISTANCE TO PRICE INCREASES THAN RETAIL, CONSTRUCTION SECTORS. RTRS-FED-CONSUMER SPENDING PICKING UP MODESTLY, BUT SOME DISTRICTS REPORTING WEAKER RETAIL SALES; AUTO SALES UP IN MOST DISTRICTS. RTRS-FED-HOUSING MARKETS WERE WERE LITTLE CHANGED FROM LOW LEVELS OR CONTINUED TO WEAKEN ACROSS ALL DISTRICTS. RTRS-FED-LOAN DEMAND SEEN UNCHANGED OR SLIGHTLY IMPROVED SINCE EARLY MARCH, WITH CREDIT STANDARDS UNCHANGED OR SLIGHTLY TIGHTER. RTRS-FED'S BEIGE BOOK PREPARED BY RICHMOND REGIONAL BANK BASED ON DATA COLLECTED BEFORE APRIL 4.

Treasury just sold $21 billion reopened 10-year notes. Demand could be described as "apathetic" as investors seemed to scoff at higher prices/lower yields. A pre-auction rally both yesterday and in the moments leading up to the 1pm bid cut-off are largely to blame for the lack of a concession. Disinterested demand isn't obvious in the bid to cover as it was close to recent averages, it is however apparent in the breakdown of bidding interest. Direct buyers were awarded 5.9% of the competitive bid and a measly 14.6% of what they bid on while indirect accounts took home a way below average 42.4% of the issue vs. their five auction average of 56%. This left dealers to unwillingly absorb excess inventory. The street bought 51.7% of the issue vs. their five auction average of 37%. This is the largest dealer take down since February of last year. Also reflecting apathetic demand was the high yield, which came in 1.1bp higher than the 1pm "When Issued Yield". Plain and Simple: buyers didn't have a chance to price in an auction concession beforehand, so they did so during the auction process itself by only offering to buy at lower prices/higher yields. Sloppiness was totally a function of the issue being too expensive.

* U.S. BANK REGULATORS ANNOUNCE AGREEMENTS WITH MORTGAGE SERVICERS IN FORECLOSURE PROBE * FINES RELATED TO MORTGAGE SERVICING ABUSES STILL TO BE DETERMINED -- U.S. REGULATORS * U.S. REGULATORS SAY FIND WIDESPREAD MORTGAGE SERVICING PROBLEMS * BANKS AGREE TO COMPENSATE BORROWERS WHO WERE WRONGLY FORECLOSED UPON AND TO OVERHAUL THEIR MORTGAGE OPERATIONS -REGULATORS * UNDER THE AGREEMENTS, SERVICERS HAVE 60 DAYS TO FILE ACTION PLAN WITH REGULATORS TO COMPLY WITH REQUIRED CHANGES -REGULATORS * SERVICERS MUST HIRE CONSULTANT WITHIN 45 DAYS TO REVIEW FORECLOSURE ACTIONS BETWEEN JAN 2009 AND DEC 2010 -REGULATORS * MORTGAGE SERVICERS REQUIRED TO PROVIDE A SINGLE POINT OF CONTACT FOR BORROWERS TO GET INFORMATION ON LOAN MODIFICATIONS AND FORECLOSURES -REGULATORS * SERVICERS WILL BE PROHIBITED FROM SO-CALLED "DUAL-TRACKING" OF STARTING A FORECLOSURE WHILE A LOAN MODIFICATION IS PENDING -REGULATORS * REGULATORS SAY SERVICERS WHO SIGNED AGREEMENT ARE BANK OF AMERICA, ALLY FINANCIAL, HSBC, JPMORGAN, METLIFE, PNC, SUNTRUST, US BANCORP, WELLS FARGO, AURORA BANK, EVERBANK, ONEWEST BANK, SOVEREIGN BANK, CITIGROUP

Today's 10yr Treasury auction couldn't be classified as "strong" but neither would we classify it as "weak." The initial movement was negative for both TSY's and MBS. We could conceive of a lender getting ahead of themselves too much and perhaps repricing for the worse when FNCL 4.5's fell from 101-14 to 101-10 in mostly a straight line down. But that looks as if it might now prove to be hasty as bonds are on the rebound. 10yr yields found support at 3.496 and have since bounced back down to 3.479. 3.483 is a good short term technical level to watch today that might be an early indication of momentum shifting (if gains aren't able to hold). FNCL 4.5's are back up to 101-13 now, certainly in POSITIVE REPRICE territory versus the brief threat of negative. If the gains hold here, they're very close to the highs of the day again, and would leave the door open for more lenders to reprice for the better.

A bit of deductive speculation... JPMorgan Chase held it's conference call from which we shared foreclosure-related snippits earlier today in the live updates. Later in the call, JPM's CFO stated that they could see new regulations imposed as soon as later today. He also noted that regulators will "preserve the right to impose some additional fees and penalties," referring to this as "significant." Taking into consideration that the stocks leading today's sell-off are the big, mortgage-involved banks, it's not unreasonable to conclude that looming changes to the regulatory landscape are weighing on today's stock market. While new regulations may not be welcomed by all, given today's connected stock lever, they may currently be helping lift bond and MBS prices albeit indirectly. Food for thought...

The St.Louis Fed has published educational content on inflation and deflation. Here are a few excerpts: Q. How is the inflation rate measured? A. Although the level of inflation can be measured in several ways, one of the most widely used measurements is the consumer price index (CPI). This index is a monthly measure of the average change over time in the prices paid by urban consumers for a “market basket” (80,000 items) of consumer goods and services. This urban consumer group represents about 87% of the total U.S. population. Q. Downward movement in the prices of goods and services (lower prices) sounds good. So why is deflation considered a problem? A. Deflation can have undesirable “snowball” effects on an economy. Although it may sound good, a general decreasing trend in prices discourages spending and investment because consumers delay purchases while waiting for prices to drop further. For example, if the price of electronics, such as computers, tablets, and the latest phones, consistently dropped every week, you would probably delay purchasing these items until the price was as low as possible. Delayed spending results in fewer sales and less revenue for businesses, which in turn reduces the need for employees and thereby increases unemployment. Another factor to consider is the cost of credit during deflationary times. Since the value of money increases in a deflationary environment (each dollar will buy more goods and services), debtors must repay their old loans with more-valuable dollars, to the benefit of their creditors. CHECK OUT ALL THE Q&A's here: http://www.stlouisfed.org/publications/itv/articles/?id=2083&

FNCL 4.5's just hit their breakeven level on the day at 101-12. This was also the reprice target yesterday. 10yr yields are prodding into the high 3.48's as stocks continue to fall. The Stock lever is well-connected. We just saw our first reprice for the better and more are possible if these levels hold relatively steady, with more conservative lenders repricing after the 10yr note auction at 1pm, assuming similar MBS prices hold or improve.

10yr TSYs and MBS are at their best levels of the morning after the stock market showed some indecision about rallying through yesterday's highs in the mid 1318's (S&P). 10yr yields are down to 3.513, but we'd expected resistance to increase as we approach 3.5, with a positive auction result required for a meaningful breakthrough. FNCL 4.5 MBS are now down only 3 ticks on the day at 101-09.