Snowball selling in stocks begets snowball buying in bonds and there's a general panic at the moment to get in position for the ostensible fear of a fundamental shift in markets. This is bigger than tomorrow's NFP though it will still have plenty of impact potential. After the 3pm TSY close (10's were right on 3.17), stocks accelerated a sell-off that began after an intraday low and long term technical mark was broken in the S&P at 1342. 10's moved down into the 3.15's but have bounced up to 3.1645 currently. FNCL 4.5 MBS are up 11 ticks on the day at 103-13. Reprices for the better, though possible earlier in the day, are even more of a possibility now, so some lenders may still wait for NFP tomorrow morning before making significant changes to rates.

MND and Thomson Reuters would like to congratulate Jordan Novelli of AMCAP Mortgage LTD of Houston, Texas; the winner of our I-pad 2 drawing at the Mortgage Bankers Association's Secondary Market Conference this week. AMCAP is a regional firm; a seller to FHLMC since 2000 and HUD lender since 2000. Congrats Jordan!

Currently, Cash Pricing is not available in the Freddie Mac selling system. They are working on this issue and will notify us when it has been resolved. Please call 800-FREDDIE and press option 3 for "Loan Delivery" to receive an update on the status of the system.

After 10yr notes reached the mid 3.16's for a 2nd time today on the wings of short-covering, fast-money traders (hedge-funds, etc.) sent yields right back to the other side of the ping pong table by quickly electing to take profits in this important technical zone. As mentioned, this has happened on two prominent occasions today, and both times yields have been supported at 3.20 and resisted in the mid 3.16's. Volume decreased substantially on the first repetition and now is a mere fraction of it's previous levels. 10's are currently grinding sideways to slightly better after the last bounce on 3.20 and stand at 3.188. MBS are in an "ascending triangle" sort of pattern and have made up for some of the underperformance we mentioned this morning. FNCL 4.5's are now up 7 ticks on the day at 103-09 whereas the 3.188 yield is a 9 tick rise for TSYs. (this morning MBS were up 2 ticks versus TSY's 7 tick gain). Reprices for the better have been reported and while others may follow lenders who released rates either right at 8am or just before 9:30 are the more likely candidates.

* FED'S KOCHERLAKOTA - IF FORECAST HOLDS, APPROPRIATE FOR FED TO RAISE INTEREST RATES BY A MODEST AMOUNT TOWARD END OF 2011 * KOCHERLAKOTA - FED COULD ALSO REDUCE ACCOMMODATION BY SHRINKING SECURITIES HOLDINGS, BUT PREFER RATE INCREASE * KOCHERLAKOTA - IF CORE PCE INFLATION RISES TO 1.5 PCT OVER 2011, WOULD DICTATE ABOUT HALF-POINT FED FUNDS RATE HIKE * KOCHERLAKOTA - FED SHOULD SHRINK ITS BALANCE SHEET AS LONG-TERM MISSION OVER NEXT FIVE OR SIX YEARS * KOCHERLAKOTA - IF CORE PCE GOES TO 1.8 PCT OVER COURSE OF YEAR, WOULD SEEK RATE HIKE IN Q3 2011 * KOCHERLAKOTA - IF CORE INFLATION FALLS RELATIVE TO 2010, FURTHER EASING THROUGH ASSET PURCHASES WOULD BE DESIRABLE * KOCHERLAKOTA - SEE GDP GROWTH OF 3 PCT TO 3.5 PCT IN 2011, BUT HEADWINDS FROM DROP IN HOUSEHOLD WEALTH, LENDER CAUTION * KOCHERLAKOTA - EXPECT JOBLESS RATE TO FALL TO 8 PCT TO 8.5 PCT BY END OF YEAR; LABOR MARKET NORMALIZATION TO TAKE FIVE YEARS * KOCHERLAKOTA - EXPECT CORE INFLATION TO BE 1.5 PCT OVER REMAINDER OF 2011

As has been the case over the past two weeks, short covering is playing a pivotal role in the rates rally today. "Short covering" is when a bearish trader closes a position that was opened with the intention of capitalizing on lower prices/higher yields. The term "short" describes the trader's directional bias. "Covering" simply means closing the position. The resulting effect of short covering is a contraction in "open interest", which represents the number of open contracts in the marketplace. If a trader has set a short position and prices continue to rise, then their position is considered to be under water or "in the red". Leaving a short position open as rates continue to rally can be dangerous because the position gets more expensive with every uptick in price. So it should make sense that as rates have continued to rally this week it has forced more short covering which has led to snowballing in the bond market. Forced short covering is a sign of investors waving the white flag on their bearish positions but it doesn't mean there is more rally to come, although it is a precursor to a potential shift in broader investment sentiment when done so in mass size.

(Reuters) - In the wake of the financial crisis, regulators are strengthening their ability to spot fault lines in the financial system, rather than focusing exclusively on specific companies, Federal Reserve Chairman Ben Bernanke said on Thursday. "The financial crisis demonstrated clearly that supervisory and regulatory practices must consider overall financial stability as well as the safety and soundness of individual firms," Bernanke said in comments prepared for delivery to a conference. The Fed chairman did not comment on the outlook for the economy or monetary policy in his prepared remarks. Bernanke said the Fed has set up an internal working group to oversee the largest financial firms that will build on successful approaches used during recent bank stress tests. During those examinations Fed economists, bank supervisors and other experts worked together to review industry practices and links between firms to detect any possible risks to the broader financial system. Regulators, including the Fed, came under harsh criticism for failing to spot risky lending and securities packaging practices viewed as contributing substantially to a devastating financial meltdown that led to a deep recession in 2007-2009. Congress passed the sweeping Dodd-Frank regulatory overhaul last year aimed at preventing the kinds of actions and lapses that led to the crisis.

Clear Capital (www.clearcapital.com) today released its monthly Home Data Index™ (HDI) Market Report, and reports prices have double dipped nationally 0.7 percent below prior lows experienced in March 2009. Report highlights include: * National quarterly home prices changed -4.9%; while year-over-year national price changes reached -5.0%. * National home prices have fallen 11.5% over the previous nine-month period, a rate of decline not experienced since 2008. * In a sign of the continued volatility and fragility of home prices, all the major Metropolitan statistical Areas (MSA) tracked in this month’s report showed quarter-over-quarter price declines. * National REO saturation rate reaches 34.5%. “The latest data through April shows a continued increase in the proportion of distressed sales that are taking hold in markets nationwide,” said Dr. Alex Villacorta, director of research and analytics at Clear Capital. “With more than one-third of national home sales being REO, market prices are being weighed down as many markets have not regained enough footing to withstand the strain of the high proportion of REO sales.