MBS MID-DAY: REPRICE ALERT

Boston, Richmond, and Chicago reported more permanent job placements occurring in the market, while Atlanta businesses reported a continued preference for hiring temporary workers rather than permanent workers. Several Districts described an increase in demand for staffing services, especially for high-skilled IT positions. Adverse weather conditions continued to hamper agricultural production in many Districts, but strong prices helped producers of cotton, corn, soybeans, wheat, poultry, hogs and cattle. St. Louis attributed a decline in manufacturing activity to several factory closings. Cleveland, Atlanta, and Minneapolis indicated that adverse weather conditions temporarily disrupted production. Philadelphia, Richmond, Minneapolis, and Dallas observed rising demand for general professional business services, with several reports singling out accounting firms. Dallas noted that much of this rise in demand for accounting services was related to consulting and transactional work. Several Districts also cited increased demand for healthcare, insurance, and legal services. The New York District, while reporting that legal hiring had picked up a bit, observed that it was from very low levels. St. Louis reported overall strength in business services, although contacts in government services and religious organizations announced plans to decrease operations and lay off workers. San Francisco also saw improved demand for consumer and business services, but countered that providers of healthcare, legal, and accounting services reported that demand remained largely flat.

RTRS-U.S. HOUSE REPUBLICANS DELAY PANEL VOTE TO KILL OBAMA'S MAIN MORTGAGE AID PROGRAM

ONE REASON RATES ARE HIGHER AFTER 830AM HEADLINES FLASHED: (Reuters) - Inflationary pressures have increased over the last month, risks are to the upside and "strong vigilance" is required, European Central Bank President Jean-Claude Trichet said on Thursday. "Strong vigilance is warranted with a view to containing upside risks to price stability," Trichet told a news conference after the bank kept interest rates at a record low of 1 percent. He said inflation pressures had increased since the ECB last met a month ago, largely due to a rise in commodity prices, adding that price risks were on the upside. The ECB used the phrase "strong vigilance" repeatedly during its 2005-2007 rate hike cycle, typically one month before it raised rates, although there were exceptions to that rule. It is not clear whether the verbal signal still holds good. Euro zone inflation accelerated to 2.4 percent last month, moving further above the ECB's target of just below 2 percent. (Writing by Paul Carrel, editing by Mike Peacock).

*** ISM REPORT ON U.S. NON-MANUFACTURING SECTOR SHOWS PMI AT 59.7 IN FEBRUARY (CONSENSUS 59.5) VS 59.4 JAN *** ISM NON-MANUFACTURING BUSINESS ACTIVITY INDEX 66.9 IN FEBRUARY (CONSENSUS 64.0) VS 64.6 IN JAN *** ISM NON-MANUFACTURING PRICES PAID INDEX 73.3 IN FEBRUARY VS 72.1 IN JANUARY *** ISM NON-MANUFACTURING EMPLOYMENT INDEX 55.6 IN FEBRUARY VS 54.5 IN JANUARY

MBS found some stability between 101-12 and 101-14 as Benchmark 10yr notes met firm support at 3.533. When certain prices or yields get as many bounces as 3.533 did this morning, it is significant when it breaks. Well... It broke. Yields moved quickly higher to 3.546. The other implication of breaking what had been a support level is that it now suggests itself as a resistance level. "Resistance" doesn't mean yields are less likely to break back through, but simply IF yields can break back through, it carries some significance. FNCL 4.5's are only a few ticks lower than their previous range, currently at 101-11. With minutes left until data, we could also be witnessing some sort of pre-data "lead-off" which could resolve itself back under recently broken technical levels on a weak report.

The rapidly rising 10yr yield hit what has turned out to be a brick wall at 3.533. We see numerous support bounces off this supportive ceiling in healthy volume. Thus it suggests itself as an important pivot today. It's too soon to consider this support to have held, but if it maintains its brick-like performance into and after ISM and the stock market open, it will be important to watch going forward (namely, that breaking it could foreshadow further weakness). FNCL 4.5's have also shown signs that they may be digging in near there lows, currently at 101-13.

After the better-than-expected Jobless Claims report (368k vs 398k consensus), MBS and Treasuries are selling off a bit, bringing the 10yr note to 3.527 and FNCL 4.5's 7 ticks weaker on the day to 101-12. The next major scheduled Econ Data hits at 10am with ISM Non-Manufacturing Index.

U.S. Q4 NON-FARM PRODUCTIVITY UNREVISED AT +2.6 PCT (CONS +2.6 PCT), PREV +2.6 PCT *** UNIT LABOR COSTS UNREVISED AT -0.6 PCT (CONS -0.5 PCT), PREV -0.6 PCT *** NON-FARM PRODUCTIVITY REVISED TO +3.9 PCT FROM +3.6 PCT

JOBLESS CLAIMS FELL TO 368,000 FEB 26 WEEK (CONSENSUS 398,000) FROM 388,000 PRIOR WEEK (PREVIOUS 391,000) *** US JOBLESS CLAIMS 4-WK AVG FELL TO 388,500 FEB 26 WEEK FROM 401,250 PRIOR WEEK (PREV 402,000) *** CONTINUED CLAIMS FELL TO 3.774 MLN (CON. 3.800 MLN) FEB 19 WEEK FROM 3.833 MLN PRIOR WEEK (PREV 3.790 MLN) *** INSURED UNEMPLOYMENT RATE FELL TO 3.0 PCT FEB 19 WEEK FROM 3.1 PCT PRIOR WEEK (PREV 3.0 PCT) *** JOBLESS CLAIMS LOWEST SINCE MAY 31, 2008 WEEK; US CONTINUED CLAIMS LOWEST SINCE OCT 18, 2008 WEEK *** US 4-WEEK AVERAGE UNDER 400,000 FOR FIRST TIME SINCE JULY 2008