We hope we don't jinx today's gains by saying this, but we've been holding post-NFP gains long enough to alleviate fears of a quick bounce-back. Even then, after such a rally day yesterday, MBS haven't been able to add to their momentum nearly as much as treasuries. 4.0's are up 6 ticks at 104-10 and 3.5's are up 11 ticks at 101-18. The yield curve is flattening aggressively with 10yr notes 7.5 bps lower at 2.0551 and 2yr notes effectively unchanged at .192. The MBS strength will be good for rate sheets, as well as the simple fact that NFP is behind us, thus removing a big uncertainty. We do wonder aloud "where can the 10yr go?" It's going to be a big challenge to get much lower than current levels in 10's, but anything's possible.

The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation. The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter. The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims. The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

(Reuters) - Nonfarm payrolls were unchanged, the Labor Department said on Friday, the weakest reading since September. Nonfarm employment for June and July was revised to show 58,000 fewer jobs. Despite the lack of employment growth, the jobless rate held steady at 9.1 percent. The unemployment rate is derived from a separate survey of households, which showed an increase in employment and a tick up in the labor force participation rate. A strike by about 45,000 Verizon Communications workers helped push employment in the information services down by 48,000. "August was a pretty rough month for the economy," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. "We saw financial markets tighten. I think businesses sort of responded by putting hiring on the back burner," he said before the release of the report. Private payrolls increased only 17,000 after rising 156,000 in July. Government employment fell 17,000, contracting for a 10th straight month. The decline in government payrolls was tempered by the return of 23,000 state workers in Minnesota after a partial government shutdown in July. Details of the employment report were weak, with manufacturing payrolls falling 3,000, reflecting the slump in business confidence. Factories added 36,000 new workers in July as disruptions to motor vehicle production caused by a shortage of parts from Japan eased. The average work week dropped to 34.2 hours, the fewest since January, from 34.3 hours. Average hourly earnings fell three cents. (By Lucia Mutikani Editing by Neil Stempleman)