Mortgage backed securities (MBS) prices are higher (rates lower) as traders await results from today's Treasury auction of a record $22 billion in 10yr notes and the Fed's second purchase of U.S. debt this week, part of its plan to purchase $300 billion of the securities by October to cap borrowing costs.

Benchmark 10yr yields have risen more than 1% from a record low 2.04% on Dec. 18th, on speculation the worst of the recession is over. The increase is tied to optimism on the economy, with rising consumer spending and falling business inventories. The spread between the 2yr & 10yr has increased to 222bps as investors demand greater compensation to lend to the government for longer periods.

Mortgage Bankers Association weekly survey showed some improvement last week as the purchase index rose 5%, but remains at a very weak level; but refinance applications are still very strong, up another 1.2% and make up 74.4% of all applications.

ADP Employer Services gauge estimates companies in the U.S. cut 491K workers from payrolls in April, but was smaller than expected and the fewest since October. March's reading was revised lower to 708K vs previous estimate of 742K, indicating the worst of the job losses may have passed. ADP figures comprise only private employment and doesn't take into account hiring/firing by government agencies. Challenger Job-Cut Report's layoff count of 132,590 vs 150,411 in March shows month to month improvement and points to easing contraction in the labor market.