Mortgage backed securities (MBS) prices rose (rates fall) after release of economic reports showed retail sales unexpectedly fell in March and wholesale prices dropped; also the Fed prepares to buy more government debt today.

March retail sales were surprisingly negative, down 1.1% and sharply below the market forecast. Sales were weak across the board; the fact that declines were widespread by components shows the consumer back into retreat mode, calling into question the "green shoots" theory that recovery is underway. Less consumer spending heading into the 2nd quarter means the recession is likely to persist.

Producer Price Index (PPI) fell 1.2%, well below the consensus, pulled down by an unexpected fall in energy costs, indicating the recession is keeping inflation under control.

Credit is starting to move again as bankers gain confidence that the worst of the financial crisis is over, bouyed by the Fed's programs to relieve disruptions in markets and restore the flow of credit. Libor (3month) rates fell to 1.12% today from 1.32% a month ago. Consumer credit costs are high by historical standards compared with what banks pay to borrow, an obstacle that must be removed to fix the economy. FYI, global losses and writedowns have swelled to $1.29 trillion!