* IMF OFFICIAL SAYS DOES NOT THINK RISING COMMODITY PRICES WILL DERAIL GLOBAL ECONOMIC RECOVERY * IMF OFFICIAL SAYS INFLATION MAY REMIAN ELEVATED FOR SOME TIME BUT WON'T THROW GLOBAL ECONOMIC RECOVERY OFF TRACK * IMF OFFICIAL SAYS EMERGING MARKET COUNTRIES MAY NEED TO USE CAPITAL CONTROLS TO AVOID DISRUPTION FROM LARGE INFLOWS OF CAPITAL * IMF OFFICIAL SAYS APPRECIATION OF EMERGING MARKET COUNTRIES' CURRENCIES IS VITAL FOR NEEDED GLOBAL ADJUSTMENT * IMF OFFICIAL-DOESN'T SEE SINGLE 'MAJOR DOWNSIDE' RISK IN GLOBAL ECONOMY,MORE FISCAL CONSOLIDATION NEEDED IN ADVANCED ECONOMIES * IMF OFFICIAL SAYS UNCERTAINTY IS 'EXTREMELY LARGE' AROUND JAPAN'S RECOVERY FROM EARTHQUAKE * IMF OFFICIAL SAYS WARNING EMERGING MARKET COUNTRIES THEY ARE GETTING TO THE POINT WHERE 'THINGS MAY BE TOO GOOD' * IMF OFFICIAL SAYS GIVEN OIL PRICE RISES TO DATE, DO NOT SEE A MAJOR IMPACT ON INFLATION * IMF OFFICIAL SAYS DOES NOT SEE MUCH OF A PASS-THROUGH FROM HIGHER OIL AND FOOD PRICES INTO CORE INFLATION IN ADVANCED ECONOMIES * IMF OFFICIAL-DOESN'T SEE SINGLE 'MAJOR DOWNSIDE' RISK IN GLOBAL ECONOMY,MORE FISCAL CONSOLIDATION NEEDED IN ADVANCED ECONOMIES * IMF OFFICIAL SAYS VERY IMPORTANT TO REALIZE IRELAND, GREECE, PORTUGAL FACE VERY DIFFICULT FISCAL ADJUSTMENTS * IMF OFFICIAL SAYS IMF PROGRAMS FOR IRELAND AND GREECE ARE BASED ON ASSUMPTIONS THAT THEY WILL HONOR THEIR GUARANTEES * IMF OFFICIAL SAYS SO FAR BAILOUT PROGRAMS IN GREECE AND IRELAND HAVE BEEN 'VERY GOOD DEALS' FOR THEM * IMF OFFICIAL SAYS SPAIN HOUSING PRICES STILL HAVE 'SOME WAY TO GO' ON THE DOWNSIDE, BANKS CAN HANDLE WITHOUT SERIOUS TROUBLE * IMF OFFICIAL SAYS SPANISH GOVERNMENT HAS TAKEN 'SIGNIFICANT STEPS,' DOING THE RIGHT THINGS TO DEAL WITH ECONOMIC PROBLEMS

Despite MBS continuing to outperform Treasuries, the latter has fallen to it's weakest levels of the day with yields now up 1.31 bps in 10yr notes to 3.596. Although this is an anticipated support level, MBS are off their best levels of the day with FNCL 4.5's now up only 1 tick on the day at 101-08.

FNCL 4.5's are now up 5 ticks on the day, maintaining roughly the same gap in price vs. price change over the 10yr note. 10's are up 2 ticks, dropping the yield .58 bps on the day to 3.5772. Stocks opened slightly stronger, but seem to have encountered resistance at 1333 in S&P's and are now down to 1330.35. Any lenders who priced before 9am may already be considering repricing for the better if these gains hold or extend.

Amidst the absence of economic data and low volume, MBS are tightening the screws versus benchmark 10yr notes. FNCL 4.5's are UP 2 ticks on the day at 101-09 while 10yr notes are DOWN 2 ticks on the day, bringing yields higher .36bps to 3.587. However, it's unlikely that these gains are high enough or come late enough to warrant reprices for the better.

Prices of subprime CDS (collateralized debt obligations) increased for a 5th month in a row, and at strong pace relative to the rest of the rally months according to Fitch Solutions. These most recent gains bring their subprime CDS index to it's highest levels since 10/2008. The best performing components included 2004 loans at +9.4% and 2007 with a 6.7% increase. 'Recent improvements in the job market are translating into falling subprime delinquency rates,' said Fitch's director David Austerweil. 'Additionally, fewer subprime borrowers are rolling from the early stages of delinquency to the later.' The percentage of borrowers who were 30-days delinquent decreased by 5.3%, while the percentage of borrowers who were 60-days delinquent decreased by 4.4%. The pace at which 2004 loans were brought current after being 60 days late or more increased by 50%. That same figure increased by 30% among borrowers 30-60 days late. Although only half as many 2007 loans rolled from foreclosure to REO status (2.5% vs 5% last year), the severity of losses increased from 70% to 77% and the total percentage of foreclosed homes remained relatively unchanged at a staggering 19.8%. 'Homes in foreclosure remain near record highs, while foreclosed homes sold each month continue to decline,' said Senior Director Alexander Reyngold. 'Loan loss severities have increased proportionally to the time required for the loan to be liquidated over the last year.' The resulting increase in loss severities can lead to lower CDS prices as losses to the reference bond also accrue to the CDS.

Looking at the 2-day MBS chart, it may be readily apparent that Friday's most recurring low was at 101-04. Dipping below this level this morning would be a sign of weakness for MBS and signal that rate sheets would be coming out worse. But in terms of gauging the general momentum of TSY's and MBS today, the 10yr note is a more pertinent benchmark. As such, we'd note the obvious: 3.60 is the supportive line of defense that bond bulls would hope to hold this morning and beyond. As you may see on Friday, a brief foray outside that level didn't prove to be the end of the world, so any breakout will need to be confirmed before taken as a negative indicator. On the positive side, we see a slight short-term pivot point at 3.577 that got some play on Friday, but in the broader context, 3.57 is the main gatekeeper to lower yields. On hourly charts, this level hosted support bounces in early March and early April. Before then it acted as resistance on 2/17 and then most recently, acted as resistance on Friday as well. Bottom line: it's seen plenty of action approaching from both sides to be considered an important line in the sand.

*** TOKYO - FED'S DUDLEY: U.S. ECONOMY HAS LOST MOMENTUM IN PAST FEW MONTHS DUE TO OIL PRICES *** FED'S DUDLEY: OIL PRICES RIGHT NOW DON'T SUGGEST EXPANSION WILL BE DERAILED *** FED'S DUDLEY: OIL PRICES ARE NEGATIVE TO ECONOMIC OUTLOOK *** FED DUDLEY: CPI RISE IN U.S. MAY BE MORE MODEST THAN OTHER COUNTRIES AS U.S. STARTING AT LOWER BASE *** FED'S DUDLEY:IMPORTANT NOT TO OVERREACT TO RISE IN HEADLINE INFLATION AS IT'S LIKELY TO BE TEMPORARY *** FED'S DUDLEY: IF INFLATION EXPECTATIONS BECAME UNANCHORED, THE FED WOULD HAVE TO REACT *** FED'S DUDLEY: DON'T SEE SIGNS THAT INFLATION EXPECTATIONS ARE BECOMING UNANCHORED *** FED'S DUDLEY: CAN'T SAY U.S. ECONOMIC RECOVERY IS ASSURED *** FED'S DUDLEY: THERE IS MORE SLACK IN THE U.S. ECONOMY THAN IN EUROPE *** FED'S DUDLEY: OVERREACTING TO A RISE IN HEADLINE INFLATION COULD LEAD TO A MONETARY POLICY MISTAKE *** FED'S DUDLEY: U.S. WAGE GROWTH IS STILL LOW *** FED'S DUDLEY: SHOULDN'T BE TOO ENTHUSIASTIC ABOUT TIGHTENING MONETARY POLICY TOO EARLY *** DUDLEY: FED TRIES TO SET OPTIMAL MONETARY POLICY FOR THE U.S. ECONOMY, NOT FOR THE GLOBAL ECONOMY *** FED'S DUDLEY: U.S. HOUSING SECTOR