After getting as high as 3.238, 10yr notes returned to test the 3.20 pivot point, currently at 2.197 and have been grinding indecisively around those levels since just before 10am. At the same time, stocks reached their lows of the day and the stock lever looks relatively connected so far. The tacit implication is that stocks would need to sell further in order for 10yr notes to get meaningfully under 3.20. For now, this possibility remains uncertain. MBS on the other hand, seem certain to outperform TSYs today. 4.5s are down one tick and 4.0's down 5 ticks versus the 3.20 level in TSYs constituting a 13 tick loss. If these MBS levels show signs of stability or improvement we could even see a reprice for the better (as odd as that sounds...).

* FED'S DUDLEY SAYS WEAKNESS IN FIRST-QUARTER U.S. GDP WILL PROBABLY PROVE TEMPORARY * DUDLEY - U.S. LABOR MARKET SHOWING FURTHER IMPROVEMENT * DUDLEY - HOPEFUL JOB GROWTH WILL CONTINUE TO STRENGTHEN IN COMING MONTHS * DUDLEY-EVEN IF ECONOMY ADDS 300,000 JOBS A MONTH, WOULD STILL HAVE CONSIDERABLE LABOR MARKET SLACK AT END-2012 * DUDLEY - RISKS TO GROWTH INCLUDE HIGH COMMODITIES PRICES, DECLINE IN HOME PRICES, GOVT SPENDING CUTS * DUDLEY EXPECTS HEADLINE INFLATION TO RISE IN COMING MONTHS, THEN MOVE BACK TO 2-PCT OBJECTIVE * DUDLEY - UNDERLYING INFLATION TRENDS REMAIN BELOW MANDATE-CONSISTENT LEVELS * DUDLEY-INFLATION EXPECTATIONS NOW STABLE, BUT CRITICAL TO ENSURE THEY DON'T BECOME 'UNMOORED' * DUDLEY-RECOVERY STILL MODERATE, 'CONSIDERABLE WAY TO GO' BEFORE MEETING FED'S PRICE STABILITY, EMPLOYMENT GOALS

No surprise that MBS and TSYs are getting hammered after The Employment Situation Report came out better than expected. 10 yr yields immediately rose 5bp from 3.17 to 3.22 and have since moved up to 3.23. 10's had broken out of a trend channel on Wednesday and retested the lower line as support near these levels. But the channel is downwardly sloped, and the line passes more appropriately through 3.21-3.22 today. Beyond that, there's 3.25 as a horizontal pivot. So we're in a slightly indecisive position at the moment, but the fact that it's indecision between holding on to an aggressive breakout of a bullish trend or on the downside, merely returning into a more moderate bullish trend, speaks volumes for the degree to which markets have been moving for bigger reasons than NFP alone. As far as MBS, we know they tend to outpeform TSYs into sell-offs and today is no exception. FNCL 4.5's are down only 8 ticks (10's are down 19), to 103-07. Rate sheets that come out any time soon are relatively certain to be worse than yesterdays and on the off chance you had pricing available before 830am, reprices for the worse are likely if not already seen.

* U.S. APRIL NONFARM PAYROLLS +244,000 (CONSENSUS +186,000) VS MARCH +221,000 (PREV +216,000), FEB +235,000 (PREV +194,000) * US APRIL PRIVATE SECTOR JOBS +268,000 (CONS +200,000), MARCH +231,000 (PREV +230,000) * U.S. APRIL GOVERNMENT JOBS -24,000 VS MARCH -10,000 (PREV -14,000) * U.S. APRIL JOBLESS RATE 9.0 PCT (CONSENSUS 8.8 PCT) VS MARCH 8.8 PCT (PREV 8.8 PCT) * U.S. APRIL AVERAGE HOURLY EARNINGS ALL PRIVATE WORKERS +0.1 PCT (CONS +0.2 PCT) VS MARCH +0.2 PCT (PREV 0.0 PCT), TO $22.95 VS MARCH $22.92; APRIL YEAR-ON-YEAR EARNINGS +1.9 PCT * U.S. APRIL AVERAGE WORKWK ALL PRIVATE WORKERS 34.3 HRS (CONS 34.3 PCT) VS MARCH 34.3 HRS (PREV 34.3), FACTORY 40.4 VS 40.4, OVERTIME 3.3 VS 3.2