MBS MID-DAY: Watching CSPAN

Any other day this week, a 6 point drop in S&P's would have coincided with better gains for Treasuries. Instead, it's just sideways and tepid as 10's continue to favor 3.59 (but nothing lower!). MBS have come off their lows of the morning, but similar to Treasuries, are encountering their own resistance. That's at 101-06 in FNCL 4.5's. Ugly day so far, with potentially negative short/mid term technical implications. Break and close above 3.60 feels like it would make 3.70 target re-testing a higher likelihood.

*** FEB WHOLESALE INVENTORIES +1.0 PCT (CONSENSUS +1.0 PCT) VS JAN +1.0 PCT (PREV +1.0 PCT) *** FEB WHOLESALE SALES -0.8 PCT (CONSENSUS +1.8 PCT) VS JAN +3.3 PCT (PREV +3.5 PCT) *** FEB STOCK/SALES RATIO 1.16 MONTHS' WORTH VS JAN 1.14 MONTHS *** FEB SALES DROP FIRST DECLINE SINCE JUNE 2009, LARGEST SINCE MARCH 2009 (-3.0 PCT)

*** FED'S FISHER-US RECOVERY GAINING STEAM, APPEARS TO BE SELF-SUSTAINING *** FED MUST NOT MONETIZE, OR APPEAR TO MONETIZE, GOVERNMENT DEBT-FISHER *** FISHER-INFLATION GAINING GROUND WORLDWIDE, EXPECTS 'UNPLEASANT' US INFLATION DATA IN COMING MONTHS *** FISHER-FED RISKS COMPOUNDING INFLATIONARY PRESSURES IF IT FAILS TO WITHDRAW LIQUIDITY FAST ENOUGH *** FISHER-FURTHER FED EASING RISKS FUELING SPECULATIVE 'TOMFOOLERY' *** FISHER-CONTINUED ACCOMMODATION PRESENTS SIGNIFICANT RISKS, NO AMOUNT OF FURTHER ACCOMMODATION WOULD BE WISE *** FISHER-'IT MAY WELL BE WE SHOULD CONSIDER' CURTAILING FED'S CURRENT BOND-BUYING PROGRAM *** FED MUST NORMALIZE OPERATIONS IN A TIMELY WAY-FISHER *** FISHER-U.S NOW ON ROAD TO FIXING FISCAL PROBLEMS, THOUGH WILL BE A TITANIC STRUGGLE *** FISHER-U.S. MUST NOT RESORT TO SUSTAINED NEGATIVE REAL INTEREST RATES, INFLATION TO SOLVE FISCAL PROBLEMS

(Reuters) - Wells Fargo & Co (WFC.N) said on Thursday it is shedding about 1,900 jobs, or less than 1 percent of its total workforce, as mortgage refinancings slow. The San Francisco-based lender said notices went out March 23 giving the employees 60 days to find new jobs. Some will be reassigned in the company, spokesman Jason Menke said. A majority of the jobs were temporary, created last year when refinancings surged due to record-low interest rates. "They were hired during the last several months to assist us with application volumes," Menke said. "We had seen a significant increase in demand for mortgage refinancings throughout 2010." "Interest rates were favorable by historical standards," Menke said. "Interest rates have edged up a bit. That's part of it."

*** FED'S LOCKHART SAYS WHEN TIME COMES TO RAISE RATES WILL RAISE BOTH FED FUNDS AND INTEREST ON RESERVES TOGETHER, BUT NOT TIME YET *** LOCKHART SAYS ECB MOVES DO NOT HAVE EFFECT ON POLICY POSTURE OF THE FED *** LOCKHART SAYS FED MONITORING SOVEREIGN DEBT CHALLENGE IN EUROPE FOR ANY POTENTIAL SPILLOVER EFFECT ON US ECONOMY *** LOCKHART SAYS DOES NOT SEE MAJOR EXPOSURE IN U.S. TO EUROPEAN PROBLEMS *** LOCKHART SAYS CONCERNED THAT TALKING IN DETAIL ABOUT EXIT STRATEGY AT TOO EARLY A STAGE COULD BE COUNTERPRODUCTIVE

While 10yr notes paid much respect to their 3.56 target yesterday (indeed, this will remain an important technical inflection point given several recent support bounces), it was ultimately broken in overnight trading and that break is being confirmed in medium volume so far this morning, or rather, it's at risk of being confirmed. The upside potential is that the hourly chart of 10's will look "not to bad" with respect to 3.56 as a support level if 10's manage to continue rallying this morning. That has been the trend so far as yields have come from 3.62 at 8:26am to 3.587 currently. However, the unpleasant potential is that we'd encounter yesterday's high yields as potential resistance now. The extent to which that pans out seems that it will be dependent to some extent, on the stock lever (so far, it's been to a "great extent"). Even this morning, TSYs finally put an end to the selling as stocks made their first "lower high." As far as MBS, though they're content to outperform TSYs into a sell-off, the overall weakness is more than enough to bring MBS lower, with FNCL 4.5's down 6 ticks so far this morning at 101-06. The only data on tap this morning comes at 10am with the Wholesale Trade Report.

Not much economic data on the calendar today. Investors are focusing on whether Republicans and Democrats can find a last-minute compromise on this year's budget and avoid a costly government shut-down. We don't see a short term spending bill reaching President Obama's desk today, meaning the government will likely shutdown at midnight, but we do anticipate a Continuing Resolution to be agreed upon by Monday morning. Even with a potential government shutdown looming, S&P 500 futures are 6.25 points higher at 1,334.75. The Nikkei jumped 1.85% after another earthquake shook the northeastern shore of Japan, killing two people and knocking out power to millions in the process. The stock lever has not been a supportive influence on the bond market lately. This relationship is all about the uncertainty that pervades markets amidst the deluge of economic data, headline news, geopolitical risk, budget battles, Fed Policy speculation, Treasury auction supply, and market technicals ...just to name a few. The benchmark 10-year yield backed up another five basis points to 3.60% last night. Trading volume on Globex was heavy into the price decline with over 300k 10s trading as of 8:25am. That is well-above average and indicative of liquidative selling. The long end of the yield curve led the move higher in rates. The 2s/10s curve is 2bps steeper at 278bps wide. The FNCL 4.5 is -8/32 at 101-04. Current coupon yield spreads are tighter but loan pricing is going to be worse this AM, barring a total turnaround in the next two hours. The real headline in this market should be oil trading over $110/barrel yesterday and breaking through $111 last night. NYMEX light crude is currently +1.21% at $111.63. Rising oil prices fuel our call for another leg lower in interest rates as Main Street America sees spending money squeezed into the summer months. Gold prices keep rising on inflationary concerns; overnight they rose 0.92% to $1,470.89.