Mortgage backed securities (MBS) prices are lower in volatile trading (rates higher), but off their lows, as the market reacts to signs of stronger global economic growth and as speculation increased that U.S. banks are strong enough to weather the recession.

Treasury yields increased to the highest levels in more than 5 months with the 30yr bond at 4.17% & the 10yr note at 3.26% before today's auction of $14 billion of 30yr debt.

Regulators unveil today results of Fed stress tests on the 19 biggest lenders, with consensus that there will be a reassuring picture of the U.S. banking system. European Central Bank (ECB) cut its key interest rate to a new record low of 1%, while Bank of England left its key rate at 0.5% but increased its asset-purchase program, joining the U.S. in effectively printing money to reflate their economies in a policy known as quantitative easing. However, global central banks risk inflation, currency devaluation and a consolidation in bond markets by pumping cash into their economies. Jobless claims unexpectedly fell by 34K to 601K, lowest level in 3 months, but people collecting benefits climbed 56K to 6.35 million. The report is a sign the worst of the job cuts may be over, but companies are still not hiring even as staff reductions abate and reinforces other figures this week that showed the job market was contracting at a slower pace.

Productivity, a measure of employee output per hour, rose 0.8% in the 1st quarter, helped by reduced hours worked & slower compensation growth. Labor costs climbed 3.3% after rising 5.7% in the 4th quarter. The report shows businesses are cutting labor hours to reduce costs, which is typical during this stage of recession.