Treasuries were mostly flat overnight until about 7am Eastern time.  From there yields rose slowly, along with stock prices, moving from 2.63 to 2.65 ahead of the morning's first economic data: weekly Jobless Claims.

The data was stronger than expected:

• 304k claims vs 314k forecast
• Previous week revised to 302k from 300k
• Continued Claims 2.739 mln vs 2.795 mln forecast

Bond markets weakened another few ticks after this data with 10yr yields briefly touching 2.66 just now (2.659 currently) and Fannie 4.0s down 5 ticks at 104-09. 

The only other significant data this morning arrives at 10am with the Philly Fed Index.  Then bond markets close early at 2pm ahead of tomorrow's full closer for Good Friday.  Participation should trail off rapidly by noon.

Industrial Production and Capacity Utilization data came out stronger than expected just now.  Here's the run-down:

• March Industrial Output +0.7 vs +0.5 forecast
• Big revision in February to +1.2 from +0.6 previously
• Capacity Use Rate 79.2 vs 78.7 forecast, highest since June 2008

10yr yields moved relatively quickly to their highest levels of the day.  MBS mimicked the move with less conviction, but are still falling on the data.  Fannie 4.0s are currently down 5 ticks at 104-11 and Fannie 3.5s are down 6 ticks at 101-03.

Ukraine, as a market mover, went from a distant memory yesterday to 'front and center' for most of today.  As global financial markets weigh the prospects of civil war--chiefly the involvement of larger nations like the US and Russia--bond markets have rallied strongly and stocks have sold-off.

Treasuries, which benefit more from such flight-to-safety trading, had already broken below yesterday's low yields.  MBS have now joined them in breaking yesterday's best levels, though they continue to lag overall (which is normal in these cases). 

Still, the incremental improvements make positive reprices incrementally more likely.  We're in a situation now where if you haven't seen a reprice yet, you almost certainly will.  Fannie 4.0s are up a quarter of a point at 104-20 and Fannie 3.5s are up 10/32nds at 101-16.

There hasn't been a decisive move in MBS or Treasuries yet, following the 830am economic data.  If you had to assign a label, it's probably "sideways" for now.  The only downside is that bonds were slightly weaker overnight, confirming yesterday's late weakness in MBS.

The losses haven't been extreme with Fannie 4.0s down only 2 ticks on the day.  10yr yields are up 1.6b3 ps at 2.655--under the 2.663 highs from earlier this morning.

The economic data was a mixed bag with inflation being slightly hotter than forecast and the NY Fed Manufacturing numbers being weaker.

CPI

• +0.2 vs +0.1 forecast 
• Core CPI (excludes food and energy) +0.2 vs +0.1 forecast
• Year over year Core CPI +1.7 vs +1.6 forecast

Markets looked like they might have been reacting to the traction in inflation data right at 8:30am, but perhaps the lackluster manufacturing data helped balance the outlook.

Empire State Manufacturing

• +1.29 in April vs +8.0 forecast, +5.61 in March
• Employment Index +8.16 vs +5.88 in March
• 6-Month Outlook +38.23 vs +33.21 in March

The next data this morning will be the NAHB Housing Market Index at 10am.

Nothing about trading levels has changed since 11am as MBS continue to bounce along at the lowest prices of the day.  On a positive note, they've done a good job of not breaking any lower.  On a negative note, the losses are right around an eighth of a point for some lenders depending on the time of day they generated rate sheets.

While that suggests most are not at great risk of negative reprices, it also means it can't be ruled out for others (a few already have).  On a qualitative note, losses today would break the recent streak of steady-to-lower rates for the past 6 sessions.

Reprice risk would increase if Fannie 4.0s move below 104-14 or if Fannie 3.5s move below 101-06.  Technical support at 2.656 in 10yr yields also seems worth glancing at as that's where yields held firm twice this morning (currently 2.643).

Stocks and bonds haven't been perfectly connected all morning, but are generally moving in the same direction at the same time.  As such, bond markets did a good job of battling back against earlier weakness when stock futures shied away from a stronger rally on the Retail Sales data.

When stocks hit the 'cash' open at 9:30am, they fell below their 8:30am levels implied by futures.  Bond markets mirrored the move, with MBS rising back above 8:30am levels.

Both MBS and Treasuries are now at their best levels of the morning.  Fannie 4.0s are unchanged from Friday's latest levels at 104-19 and 10yr yields are still slightly weaker at 2.63.