The Day Ahead: PPI, Jobless Claims, Bond Auction, Fed Speak

Stock futures are lower and the Treasury market continues to firm following a volatile session yesterday.

The ten-year Treasury rallied  three basis points overnight to 3.43%, marking the third straight session of strengthening.  The benchmark 10-year note is currently +4/32 at 101-16 yielding 3.444%. 10s actually moved mostly sideways in overseas trading before making a break lower in the 5AM hour after this headline hit wires....

Euro zone hit by Greek restructuring worry: (Reuters) - Greece faced a new surge in its debt costs on Thursday after Germany said for the first time that Athens may need to restructure its debt, a move one central banker warned would be a "catastrophe." Growing talk of restructuring by Greece, the first euro zone member to receive a bailout a year ago, points to a new stage in the debt crisis that has driven Ireland and Portugal to seek aid and forced draconian budget cuts in Spain.

Here in the U.S., financial stocks could be in the spotlight as the Senate last night released a 600-page page report critiquing the banks for the economic crisis. The report calls Goldman Sachs, down more than 1% in pre-market trading, a "case study" of the recklessness and greed, according to CNN.

"Our investigation found a financial snake pit rife with greed, conflicts of interest, and wrongdoing," said senator Carl Levin, chairman of the subcommittee investigating the causes of the crisis.

Stocks look to decline on the open as investors brace for new data on inflation and employment.  S&P 500 futures are down 5.25 points at 1,303.50 and Dow futures are off 44 points at 12,155. 

Light crude oil futures are -0.53 at $107.18 per barrel - down from $112 per last week - while gold futures are trading +1.00 at 1,456.60.

"The US dollar index is modestly higher this morning and equity markets are taking a negative tone as inflation worries and euro area struggles weigh," said economists at BMO Capital Markets. They note that Greek and Portuguese 10-year bond yields rose to euro-era record highs, "underscoring the ongoing crisis in the region."

Mortgages have opened wider to the 10-year note but are in-line with swaps and 5-year notes. The FNCL 4.5 is UNCH at 101-18.

Key Events Today:

8:30 - With the bond market on edge about rising inflation, the Producer Price Index will be watched closely this month. The headline index jumped 1.6% in the month of February and forecasters assume another substantial increase in March at 1%. Oil prices are of course the main culprit. The core index, which excludes volatile energy and food prices, is anticipated to rise a moderate 0.2% for the second straight month.

"Food will not spike as it did last month (when a freeze devastated fresh vegetable supplies), but food commodity prices do keep climbing," said economists at IHS Global Insight, who believe oil prices could push the headline figure to 2%. " Core prices should probably climb at the recent average level of about 0.2% with some pass-through of higher commodity costs pushing prices higher."

8:30 - Initial Jobless Claims have been falling at a pretty steady pace recently. The last report showed 382k new claims for unemployment insurance in the week ending April 2, down 10k from the previous week and comparing with 405k in the first week of March. Economists anticipate 380k new claims this week, about 9k below the four-week average.

"US initial claims for unemployment insurance are likely to continue their downtrend in coming weeks," said economists at Nomura. "While layoffs are certainly slowing, we will focus on whether hiring picks up in tandem."

9:00 - Narayana Kocherlakota, president of the Minneapolis Fed, speaks to the HomeTown Helena Meeting in Helena, Montana on "Economic Development in Indian Country."

9:00 - Elizabeth Duke, governor of the Fed, speaks on small credit conditions.

12:30 - Charles Plosser, president of the Philadelphia Fed, speaks to the Levy Institute at Bard College in New York.

1:00 - Treasury auctions $13 billion 30-Year Bonds

Today is Class B Notification Day for 15 year MBS coupons