MBS MID-DAY: In the Green Before $29-Billion 7s

ROME, March 30 (Reuters) - The International Monetary Fund has cut its forecast for Japan's 2011 GDP growth after this month's devasting earthquake and has also lowered its near term outlook for the United States, Italian news agency ANSA reported on Wednesday. The IMF cut Japan's 2011 growth forecast to 1.4 percent from a previous projection of 1.6 percent in January and cut its forecast for the United States to 2.8 percent from 3.0 percent, ANSA said, citing a draft of the IMF's World Economic Outlook report to be issued in April. However, the Fund's forecasts for 2012 have been increased to 2.1 percent from 1.8 percent for Japan and to 3.0 percent from 2.8 percent for the United States, ANSA reported. The IMF slightly raised its forecast for euro zone growth this year to 1.6 percent from 1.5 percent and increased the 2012 forecast to 1.8 percent from 1.7 percent, ANSA said. (reporting: Gavin Jones, Rome Newsroom)

(Bloomberg) - The U.S. House of Representatives voted to abolish a program designed to help homeowners avoid foreclosure as some Democrats aligning with Republicans against the measure. The House voted 252-170 to eliminate the Home Affordable Modification Program, President Barack Obama’s effort to aid struggling homeowners. The program pays banks and mortgage servicers to modify borrowers’ monthly payments. About 1.5 million households have begun trial mortgage modifications through HAMP, fewer than initial projections of 3 million to 4 million. More than 600,000 homeowners have received permanent modifications. Neil Barofsky, special inspector general for the Troubled Asset Relief Program, has called the HAMP program “a failure” and said it pales in comparison to the record 2.9 million foreclosure filings in 2010. The vote is the last of four brought by House Republicans to kill funding for homeowner-aid programs backed by the administration. The measure must pass the Senate before it can become law. Senate Republicans Jim DeMint of South Carolina, Bob Corker of Tennessee and Tom Coburn of Oklahoma have introduced legislation to end the program. Obama has threatened to veto the bill if it gets to his desk.

Yesterday a judge heard pleadings regarding the NAMB/NAIHP motion for a temporary restraining order to prevent the rules from becoming effective this Friday. The judge's last words, reportedly, were that they should expect her ruling shortly. If the judge rules in favor of granting a temporary restraining order, she will probably also grant a preliminary injunction, which would prevent the rule from becoming effective until after July 21st, when the new Consumer Protection Bureau comes into effect.

Barclays Capital notes that the definition of risk retention exempt qualified residential mortgages (QRMs) is slightly stricter than expected (but remember that GSE and FHA guaranteed loans remain qualified, currently +/- 90% of production). This hints at tighter credit availability in the future, especially once the GSEs start pulling back. The risk retention provisions for non-qualified mortgages are likely to benefit banks with large balance sheets. The REIT model of securitization is also likely to benefit. But for non-QRM mortgages, traditional wholesale and conduit mortgage origination channels likely become non-viable. Accessing securitization channels will also become more difficult and/or expensive for smaller originators and banks for these kinds of loans. The "premium capture account" removes incentives for sponsors to profit upfront from securitization, strengthening the incentive alignment of risk retention. However, in its current proposed form, it significantly discourages securitization of any premium non-QRM loans.

In terms of 10yr futures contracts, volume is actually on the high side of recent hourly totals from 8am to 9am (128k and change). But despite that volume, trading seems slow in the sense that bonds have plodded predictably in a low-volatility range coming off yesterday's weakness. FNCL 4.5's are up 3 ticks at 101-19 and 10's are half a bp lower at 3.4816. Stocks just opened higher with S&P's at 1325.77. As of right now, the stock lever hasn't pulled yields any higher, but we'll let you know if that changes.

Treasuries had been relatively flat this morning until ADP data showed that private sector jobs rose 201k versus an expectation of 203k. On that news, 10yr notes rose about 3 ticks in price, bringing yields down to 3.485, a moderate improvement. FNCL 4.5's are up 2 ticks on the day at 101-18. This was the only significant econ data of the morning and the next major market mover on the calendar is at 1pm with the final Treasury auction of the week.

RTRS-ADP NATIONAL EMPLOYMENT REPORT SHOWS U.S. EMPLOYMENT INCREASED BY 201,000 PRIVATE SECTOR JOBS IN MARCH VS. CONSENSUS ESTIMATES FOR A READ OF +203,000. From the Release:: Private-sector employment increased by 201,000 from February to March on a seasonally adjusted basis. The estimated change of employment from January 2011 to February 2011 was revised down to 208,000 from the previously reported increase of 217,000. This month’s ADP National Employment Report removes any remaining doubt that private nonfarm payroll employment accelerated heading into 2011. The increase of 201,000 is in line with the consensus expectation both for today’s report and for Friday’s jobs report from the Bureau of Labor Statistics. The average monthly increase in employment over the last four months – December through March – has been 211,000, consistent with a gradual if uneven decline in the unemployment rate. This is almost three times the average monthly gain of 74,000 over the preceding four months of August through November. According to the ADP Report, employment in the service-providing sector rose by 164,000 in March, marking fifteen consecutive months of employment gains. Employment in the goods-producing sector rose 37,000, the fifth consecutive monthly gain. Manufacturing employment rose 37,000, the sixth consecutive monthly gain.

While government-sector job cuts rose to their highest level in 12 months, the pace of downsizing declined in March as employers announced plans to reduce payrolls by 41,528 jobs during the month, down 18 percent from 50,702 job cuts announced in February. The report on March job-cut announcements released Wednesday by global outplacement consultancy Challenger, Gray & Christmas, Inc. revealed that March job cuts were down 39 percent from a year ago, when employers announced 67,611 job cuts. Overall, employers have announced 130,749 job cuts through the first quarter, 28 percent fewer than the 181,183 planned layoffs announced in the same period of 2010. The three-month tally is, in fact, the lowest first quarter total since 1995, when employers announced 97,716 job cuts from January through March.