Mortgage backed securities (MBS) prices fell (rates rose) for the first time in four days as reports show manufacturing contracted less than expected, easing speculation the economic recovery was weakening; FNMA 4.0% coupon 100.14bps, -17bps. The Fed bought debt three times this week, part of an effort to lower borrowing costs, amid a two-week hiatus in the Treasury's auction schedule which resumes May 26th. International demand for long-term U.S. financial assets rose in March as China added to its portfolio, indicating foreign confidence in the U.S. markets is on the increase. Investors worldwide have sought a haven from global market turmoil by buying U.S. Treasury securities. On the downside, foreigners were heavy sellers of agency debt (FNMA, FHLMC, GNMA). Industrial Production contracted again in April but at a slower pace, down 0.5% after falling a revised 1.7% in March. Motor vehicle and parts production climbed 1.4% in April, but those increases are unlikely to be sustained in coming months as sales fall and companies shut plants to reduce inventories. Overall capacity utilization in April continued its downward trend, slipping to 69.1%, an historical low. Consumer price index was unchanged in April and on an annual basis is down 0.7%, biggest decline since 1955. Core rate, excluding food & fuel, climbed 0.3% in April, but half the jump reflected an increase in tobacoo excise taxes. Core prices rose 1.9% over the past year. Wages increased 0.1% and were up 2.6% over the last 12 months. Empire State index improved to minus 4.6 in May vs -14.7 in April, but with mixed results. General business conditions did improve, with shipments and inventories positive, however new orders show a deepening rate of contraction. Consumer Sentiment rose in May to 67.9 from 65.1, due to the expectations component jumping 6 points, but the assessment of current conditions remains very weak.