MBS and TSY's are at their weakest levels of the day as stocks rally back from their lows of the morning. 10yr yields are at 3.455 currently and FNCL 4.5's are 1 tick better on the day at 101-19. We wouldn't be shocked to see yields move a bit higher ahead of the auction, especially if stocks move higher. A tanking stock market could negate that likelihood though. Stock-Lever looks well-connected connected so far.

*FED'S KOCHERLAKOTA SAYS FED'S FIRST ROUND OF BOND BUYING LOWERED LONGER-TERM YIELDS * KOCHERLAKOTA SAYS FED'S PLAN IS 'AT SOME POINT' TO SELL OFF ASSETS * KOCHERLAKOTA - IF FED DOES NOT RAISE RATES FAST ENOUGH, WILL HAVE INFLATION * KOCHERLAKOTA SAYS COMMODITIES PRICE RISES HISTORICALLY 'TRANSITORY' * KOCHERLAKOTA- CORE INFLATION IS VERY LOW, NOT REALLY MUCH SIGN OF INFLATIONARY PRESSURES BUILDING UP * KOCHERLAKOTA - IF GAS PRICES CONTINUE TO RISE, COULD SLOW PACE OF RECOVERY

With the more directional movements over the past few days, technical levels in benchmark 10yr TSYs have a chance to justify their place on the podium. Always a top finisher, 3.42 was within striking distance as we entered the day in the mid 3.44's. Following econ data, yields shot lower for a clearly delineated resistance bounce a few thousandths of a percent above 3.42. We're now back in the same strong range from earlier this morning--3.445 at the moment. It should be noted that despite what looks like relatively small day over day gains in MBS and TSY's, that the market is actually moving significantly, and even a small incremental bump in prices today puts the current rally on par with fastest swings so far this year. For the next few hours though, it seems as though we're biding our time between now and the auction, with favorable data having caused yields to pay obligatory respect to a nearby technical. This was an ideal place to take some profits and cover shorts, both of which took place right after the post-data rally. A decent auction or better, combined with an absence of bearish bond events (i.e. super stock rally, headlines, etc..) would probably suggest a retest of 3.42. Finally on to MBS (sadly, our namesake takes a back seat to benchmark technicals at times like this), FNCL 4.5's are currently up 2 ticks on the day at 101-19. If the morning correction gets any worse, we'd be looking for 101-16 as the first layer of reprice risk. If recent behavior holds true, stock movements could be a good early indicator of how the bond market will move during the times in between economic data points.

WASHINGTON, April 14 (Reuters) - Small businesses in the United States are feeling better about their sales prospects as lending to the troubled sector thaws, Federal Reseserve Board Governor Elizabeth Duke said on Thursday. "Recent anecdotes lead me to believe that conditions are improving for small businesses, but data are scarce for this market," Duke told a conference sponsored by the International Factoring Association. "Small business owners appear to have become more optimistic about their outlook for sales." Duke said small businesses were particularly hard hit during the financial crisis, not only because credit dried up but also because many small operations rely primarily on personal wealth -- also hard hit by housing and stock market losses during the meltdown. "In the wake of the financial crisis, small business owners and potential small business owners likely experienced a substantial reduction in the personal resources necessary to start or sustain a business," Duke said. ((Reporting by Pedro Nicolaci da Costa; Editing by Chizu Nomiyama)

*TREASURY SECRETARY GEITHNER: DESPITE RISKS FROM RISING OIL PRICES, JAPAN, EU CRISIS, CONFIDENCE GROWING IN GLOBAL RECOVERY * GEITHNER SAYS CONFIDENT CONGRESS WILL RAISE THE DEBT CEILING, WOULD BE IRRESPONSIBLE TO ALLOW RISK OF DEFAULT * GEITHNER SAYS CONGRESS CANNOT TAKE U.S. "TOO CLOSE TO THE EDGE" OF DEFAULT WHEN NEGOTIATING DEBT LIMIT INCREASE * GEITHNER SAYS THE AVERAGE EFFECTIVE TAX RATE FOR VERY WEALTHY AMERICANS IS UNSUSTAINABLY LOW * GEITHNER SAYS WITH MODEST CHANGES IN U.S. TAX SYSTEM CAN GET BACK ONTO SOUNDER FISCAL FOOTING * GEITHNER SAYS IF REPUBLICANS PUSH DEBT LIMIT VOTE TO EDGE OF DEFAULT "THEY WILL OWN THAT RESPONSIBILITY"

Looking at 10yr Treasuries as a benchmark for the overnight strength in bonds, we had already hit 3.45's before 830am data. With PPI and Jobless Claims both showing a weaker than expected economic picture, the overnight gains are extending with 10yr notes currently testing the important 3.42 technical level and FNCL 4.5's up 4 ticks on the day at 101-22. Trading is active and the market has plenty of potential movement ahead before a majority of lenders release rates, but it's safe to say that if current levels hold, or are improved upon, that rates will be coming out stronger this morning. The bigger implication question of whether or not 10yr yields test 3.42 and 3.40 technical levels may need additional confirmation from a healthy 30yr bond auction at 1pm.

* US JOBLESS CLAIMS ROSE TO 412,000 APRIL 9 WEEK (CONSENSUS 380,000) FROM 385,000 PRIOR WEEK (PREVIOUS 382,000) * US JOBLESS CLAIMS 4-WK AVG ROSE TO 395,750 APRIL 9 WEEK FROM 390,250 PRIOR WEEK (PREVIOUS 389,500) * US CONTINUED CLAIMS FELL TO 3.680 MLN (CON. 3.700 MLN) APRIL 2 WEEK FROM 3.738 MLN PRIOR WEEK (PREV 3.723 MLN) * US INSURED UNEMPLOYMENT RATE FELL TO 2.9 PCT APRIL 2 WEEK FROM 3.0 PCT PRIOR WEEK (PREV 3.0 PCT) * US CONTINUED CLAIMS LOWEST SINCE SEPT 2008; INSURED UNEMPLOYMENT RATE LOWEST SINCE NOV 2008

* U.S. MARCH PPI +0.7 PCT (CONSENSUS +1.0 PCT), VS FEB +1.6 PCT * U.S. MARCH PPI EXFOOD/ENERGY +0.3 PCT (CONS +0.2 PCT) VS FEB +0.2 PCT * U.S. MARCH YEAR-OVER-YEAR PPI +5.8 PCT (CONS +6.2 PCT), CORE +1.9 PCT (CONS +1.9 PCT) * U.S. MARCH PPI INTERMEDIATE GOODS +1.5 PCT, EXFOOD/ENERGY +0.9 PCT * U.S. MARCH PPI CRUDE GOODS -0.5 PCT, EXFOOD/ENERGY -2.3 PCT * U.S. MARCH PPI ENERGY +2.6 PCT, GASOLINE +5.7 PCT, HEATING OIL +2.7 PCT * US MARCH PPI FOOD -0.2 PCT, FIRST DECLINE SINCE AUG 2010; TOBACCO UNCH, PASSENGER CARS +0.9 PCT, LIGHT TRUCKS +0.7 PCT * US MARCH YEAR-OVER-YEAR CORE PPI INCREASE LARGEST SINCE AUG 2009

UPDATED AT 11:05....