Weekly claims came in lower than anticipated as most thought it would increase and it basically was stagnant. The four-week average, a less-volatile measure, was the lowest since April 2000. Firings and lay-offs have declined leading to markets expecting wage increases are just around the corner. Recent employment data confirms that the slowdown in Q1 was 'transitory' as the Fed defines it. Wholesale prices in April (PPI) were expected to have increased, declined. Another indication that inflation concerns may be over-stated.

The initial reaction to the two reports was basically muted with not much change in interest rates or MBS prices. US stock indexes improved on the data. The rate on the 10yr note is at its highest in five months, but has come down to 2.24% as of Noon today. Mortgage rates are also the highest in four months. The yield on the 10-year German bond closed at the highest level since early December. Are these factors assit the market to see an improvement in the mortgage rates?

This afternoon Treasury will auction a new 30yr bond selling $16B. Yesterday's 10yr bidding was exceptionally strong, Tuesday's 3yr auction also found solid demand. The reaction in the rate markets after the strong 10yr did not help the rate markets, demonstrating how bearish interest rate markets are now. Too bearish in most views of the economists that I read, but it is what it is and any attempts to pick a turn have been costly. Increasing interest rates in Germany and other EU countries along with the surprising decline in the dollar have eaten away demand for US debt at least that is how it appears.

Investors and traders continue to unwind the bullish trades that were betting on even lower interest rates. The ECB's apparent success with its QE is seen as helping the EU economies resulting in a massive increase in German rates that fed to US rate markets. This morning the MBS market was trying to hold onto initial gains on the data, and so far it has with a +26BPS as Noon today. That was the situation yesterday after the very soft April retail sales report but prices did not hold and another swift move to lower prices unfolded in the afternoon yesterday. I tried floating early yesterday morning on the better open but bailed (again) as prices quickly declined. Just weigh the risk versus the reward and make your own determination - but I am locking everything within 15 days of closing.