MBS MID-DAY: Rates Backing Up

Treasury announced today that it received $475 million in proceeds for taxpayers as six financial institutions have repurchased their TARP investments. This is in addition to the preferred share repurchases. The most notable contribution came from Fifth Third Bancorp which repurchased 43.6 million in warrants after fully repaying 3.4 billion in preferred shares on 2/2/11. Total proceeds to taxpayers from Fifth Third alone equal $280 million.

MBS are still kind of on the edge of what we might consider a likely range for risks of reprice for the worse. We haven't seen the lows of the day progressively get any worse over the last 30 minutes, but 102-08 in FNCL 4.5's has held long enough that it's not out of the question that a lender or two who priced aggressively and/or at the highs this morning may soon consider a reprice for the worse. The more pronounced risks would be reserved for a 102-06 level.

10yr notes adjusted their position relative to stocks following 10am data. Yields have drifted slightly higher, now up to 3.268 in the 10yr even though stocks continue to meet resistance at 1273 in the S&P. FNCL 4.5's fell to new lows this morning, down 11 ticks as 102-09. With highs of the morning at 102-14, this is close to the level of losses that would constitute increased risks of reprices for the worse among lenders who prices near the highs. Certainly if prices fall past 102-09 either for an extended period of time or in increasing amounts, reprices for the worse could come into play.

***U.S. FEB LEADING ECONOMIC INDICATORS +0.8 PCT (CONSENSUS +1.0 PCT) VS JAN PCT (PREV +0.1 PCT) *** Building permits were the only significant major contribution. Current data suggests that January's weak LEI reading was weather-related, but recent rises in fuel prices could pose risks to March's reading as well.

*** BUSINESS CONDITIONS MARCH 43.4 VS FEB 35.9 *** NEW ORDERS INDEX MARCH 40.3 VS FEB 23.7 *** PRICES PAID INDEX MARCH 63.8 VS FEB 67.2 *** EMPLOYMENT INDEX MARCH 18.2 VS FEB 23.6 *** SIX-MONTH BUSINESS CONDITIONS MARCH 63.0 VS FEB 46.8 *** SIX-MONTH CAPITAL EXPENDITURES OUTLOOK MARCH 34.5 VS FEB 16.2

10yr notes continue to trade around an indecisive 3.25 range and yield movements remain relatively connected to stock prices. FNCL 4.5's are 9 ticks weaker on the day at 102-12 and 10yr yields are nearly 6 bps higher at 2.2608.

*** INDUSTRIAL OUTPUT -0.1 PCT (CONSENSUS +0.6 PCT) VS JAN +0.3 PCT (PREV -0.1 PCT) *** CAPACITY USE RATE 76.3 PCT (CONS 76.5 PCT) VS JAN 76.4 PCT (PREV 76.1 PCT) *** MANUFACTURING OUTPUT +0.4 PCT VS JAN +0.9 PCT, CAP USE 74.3 PCT VS JAN 74.1 PCT *** MINING OUTPUT +0.8 PCT (JAN -0.7 PCT), UTILITIES OUTPUT -4.5 PCT (JAN -2.0 PCT) *** INDUSTRIAL OUTPUT EX CARS/PARTS -0.3 VS JAN +0.1 PCT *** MOTOR VEHICLE ASSEMBLY RATE ROSE TO 8.48 MLN UNITS/YR FROM JAN 7.83 MLN

This morning's CPI and Jobless Claims numbers may have had a brief effect on bond markets, but if so, it was almost too small to notice. So far, it's the same story of stocks and bonds keeping pace with each other and of the 10yr's battle with the 3.25-ish pivot point. That marks the last yield low made by treasuries before the massive FTS buying that took place yesterday at 11:00am. That, and it's an important long term technical. Muddling around in this range is akin to sitting on a fence, ready to go either way. Next econ data up to bat is Industrial Prod/Cap U at 9:15.

*** JOBLESS CLAIMS FELL TO 385,000 MARCH 12 WEEK (CONSENSUS 387,000) FROM 401,000 PRIOR WEEK (PREVIOUS 397,000) *** JOBLESS CLAIMS 4-WK AVG FELL TO 386,250 MARCH 12 WEEK FROM 393,250 PRIOR WEEK (PREVIOUS 392,250) *** CONTINUED CLAIMS FELL TO 3.706 MLN (CON. 3.750 MLN) MARCH 5 WEEK FROM 3.786 MLN PRIOR WEEK (PREV 3.771 MLN) *** INSURED UNEMPLOYMENT RATE UNCH AT 3.0 PCT MARCH 5 WEEK (PREV 3.0 PCT) *** 4-WK AVERAGE LOWEST SINCE JULY 2008; CONTINUED CLAIMS LOWEST SINCE SEPT 2008

*** FEB CPI +0.5 PCT (+0.5465; CONSENSUS +0.4 PCT), EXFOOD/ENERGY +0.2 PCT (+0.1986; CONS +0.1 PCT) *** FEB CPI YEAR-OVER-YEAR +2.1 PCT (CONS +2.0 PCT), EXFOOD/ENERGY +1.1 PCT (CONS +1.1 PCT) *** FEB UNADJUSTED CPI INDEX 221.309 (CONS 221.20) VS JAN 220.223 *** FEB CPI ENERGY +3.4 PCT, GASOLINE +4.7 PCT, NEW VEHICLES +1.0 PCT *** FEB CPI FOOD +0.6 PCT, HOUSING +0.3 PCT, OWNERS' EQUIVALENT RENT OF PRIMARY RESIDENCE +0.1 PCT *** FEB CORE CPI SEASONALLY ADJUSTED INDEX 223.029 VS JAN 222.587 *** FEB REAL EARNINGS ALL PRIVATE WORKERS -0.5 PCT (CONS -0.3 PCT) VS JAN 0.0 PCT (PREV -0.3 PCT) *** FEB CPI RISE LARGEST SINCE JUNE 2009 (+0.7 PCT)

(Reuters) - Libyan government soldiers battled rebels on the road to the insurgent stronghold of Benghazi on Thursday as the United States raised the possibility of air strikes to stop Muammar Gaddafi's forces. But the international debate on what action to take may have dragged on too long to help the anti-Gaddafi uprising, now struggling to hold its ground one month after it started. Clashes around Ajdabiyah, a strategic town on the coastal highway, hampered the government advance on Benghazi but the army warned citizens it had the city in its sights and people should leave rebel-held locations. On the approaches to Ajdabiyah, burned out cars could be seen by the roadside while Libyan government forces displayed artillery, tanks and mobile rocket launchers, much heavier weapons than those used by the rebels. The United States, previously cool on the idea of a foreign military intervention, said the U.N. Security Council should consider tougher action than a no-fly zone over Libya.

(Reuters) - Japanese military helicopters dumped water on an overheating nuclear plant on Thursday while the United States expressed growing alarm about leaking radiation and said it was sending aircraft to help Americans leave the country. Engineers tried to run power from the main grid to start water pumps needed to cool two reactors and spent fuel rods considered to pose the biggest risk of spewing radioactivity into the atmosphere as the capital faced possible widespread powercuts. While Japanese officials scrambled with a patchwork of fixes, the top U.S. nuclear regulator warned that the cooling pool for spent fuel rods at reactor No.4 may have run dry and another was leaking. Gregory Jaczko, head of the Nuclear Regulatory Commission, told a parliamentary hearing that radiation levels around the cooling pool were extremely high, posing deadly risks for workers still toiling in the wreckage of the earthquake-shattered power plant. "It would be very difficult for emergency workers to get near the reactors. The doses they could experience would potentially be lethal doses in a very short period of time," he said in Washington. Japan's nuclear agency said it could not confirm if water was covering the fuel rods. The plant operator said it believed the reactor spent-fuel pool still had water as of Wednesday, and made clear its priority was the spent-fuel pool at the No.3 reactor. On Thursday morning alone, military helicopters dumped around 30 tonnes of water, all aimed at this reactor.

Equity futures are rebounding modestly this morning after substantial losses earlier in the week erased all of 2011's gains. Bonds are backing up in the process. S&P 500 futures are 12.00 points higher at 1,266.00 and Dow futures are up 69 points at 11,647. Since hitting a calendar-year high on Feb. 18, the S&P has shed 83.5 points, or 6.23%, while the Dow has lost 705 points, or 5.72%. Light crude oil rose 1.88% overnight to $99.82 per barrel while gold prices are up 0.16% to $1,401.55. The U.S. dollar is weaker as investors take money out of safe haven assets. Treasuries are down too - the benchmark 10-year yield rose one basis point to 3.22%, reversing a bit of the nine basis point firming yesterday. Rates trading volume continues to be very high. "Investor risk appetite is back on as concerns about Japan's nuclear crisis have abated somewhat," said economists at BMO Capital Markets, noting that Japan is adding more workers at the Fukushima power complex and that G7 officials are expected to meet tomorrow to discuss assistance for Japan. Equities in Japan finished 1.44% lower while stocks in China fell 1.14% and Hong Kong shares declines 1.83%. Equities in Europe are modestly up, including a 0.83% in London's FTSE 100.