Production MBS coupons and benchmark Treasuries benefited from a continued flight to safety yesterday. Sparked by short covering in the interest rate futures market, reprices for the better were reported in the afternoon hours. Unfortunately updated rate sheets simply washed out early morning weakness and left loan pricing flat on the day. 

Interestingly enough,  the flight to safety from stocks to bonds played out with little regard for  the strongest ISM Manufacturing report the market has seen in almost 7 years.  Instead, unrest in Middle East and its impact on energy prices and the overall economic outlook continues to grab the market's attention. Stocks ended the session sharply lower. S&Ps fell 1.58% to 1,306.29.

The day ahead includes an encore from the Fed Chairman, a potential preview of Friday's official Employment Situation Report, and an anecdotal look at economic conditions around the country. We've already seen one piece of data on screens this morning, the Challenger, Gray & Christmas Planned Layoffs Report. From the Release....

The number of planned job cuts announced by U.S.-based companies increased for the second consecutive month in February, rising to 50,702, the highest total since March 2010, according to the latest report on monthly job cuts release Wednesday by global outplacement consultancy Challenger, Gray & Christmas, Inc.  The 50,702 job cuts announced last month was up 32 percent from January’s 38,519. It was 20 percent higher than the 42,090 planned layoffs announced in February 2010. This marks the first year-over-year increase in monthly job cuts since May 2009 when job cuts totaling 111,182 surpassed the 103,522 layoffs announced the same month a year earlier by seven percent. Despite the February surge, the pace of job cutting remains relatively subdued. The two-month job-cut total of 89,211 is 21 percent lower than the 113,572 job cuts announced in January and February 2010.

Ahead of 8:15 data stock futures are slightly higher. S&Ps are +2.00 at 1303.00. Dow futures are +12 at 12,034.  Bonds extended their late afternoon rally into the Tokyo session, the 10-year note yield traded as low as 3.379%, but failed to maintain that positive progress as traders were seen booking profits out the gate in the London session. The 10-year note is currently -10/32 at 101-18 yielding 3.438%. The 2s/10s curve is 2bps steeper at 276bps wide. The FNCL 4.5 MBS coupon is -4/32 at 101-26.

Key Events in the Day Ahead...

8:15 -  The ADP Employment Report provides an unofficial preview of the official Employment Situation Report, which will be released on Friday morning. ADP is expected to show 175,000 private industry jobs were added in February vs. the 187,000 reported in January. This would constitute a 72,000 decline from the hiring peak of 247,000 seen in December. Reuters reports that the release will also include annual revisions. Seasonal adjustments may be a factor boosting the prior results, but these are generally less favorable in February and may serve to keep the ADP estimate grounded closer to what may be a more sustainable trend.  The ADP report does not include government payroll activity.

10:00 - Federal Reserve Chairman Ben Bernanke delivers a repeat performance of the semiannual economic update we heard yesterday, this time before the House Financial Services Committee.

10:15 - The Fed purchases an estimated $5-7 billion in Treasuries maturing between 03/31/2015 and 08/31/2016

2:00 - The Fed will release the Beige Book which is a compilation of anecdotal information and data on current economic conditions across the country. They call it the Beige Book because its Beige. The findings are NOT THE VIEWS OF FEDERAL RESERVE OFFICIALS...instead, each Federal Reserve bank interviews key business contacts, economists, market experts, and other sources in their specific district. This report is published eight times a year.

2:15 - Federal Reserve Bank of Atlanta President Dennis Lockhart participates in a question-and-answer session on the economy and monetary policy with Allan Maurer, editor of Tech Journal South, before the Southeast Venture Conference.  Audience Q&A expected. No media Q&A.

8:00pm - Federal Reserve Chairman Ben Bernanke speaks on "Challenges for State and Local Governments" before the Citizens Budget Commission Annual Dinner. No Q&A.