Mortgage backed securities (MBS) prices opened higher, reaching +20bps, only to reverse course in volatile trading after release of several economic reports and Fed Chief Bernanke's assertion that large budget deficits threaten our financial stability and borrowing at the current rate to finance the debt can't continue; FNMA 4.5% coupon 99.92bps, -2bps. 30yr fixed mortgage rates soared 44bps last week, the result of inflation expectations, reducing demand for refinancing 24% according to the Mortgage Bankers Association's weekly survey of mortgage applications. MBA purchase index did increase 4.3%, but has been flat all year and needs to keep moving up week after week before signaling stronger demand for housing. Challenger's Job-Cut Report layoff count fell to 111,182 in May vs April's 132,590 hinting at sequential improvement in labor market. ADP's employment report estimates private payrolls fell 532K in May confirming expectations for no month to month improvement in payroll contraction. ISM Non-Mfg Index edged higher only 0.3% to 44 in May, less than forecast and still below 50, indicating the economy is still slowly contracting and showing no visible improvement. New orders are falling, not rising, and backlog orders also showed a decline. These results will push back expectations for the pace of economic recovery. Factory orders rose 0.7% in April, less than forecast, after a revised 1.9% drop in March that was more than twice the previous estimate. Factory destocking continues with inventories down 1.0%, as manufactures realign to meet the lower level of demand. There are signs that efforts to purge inventories may be close to ending and that sales and production will turn around in coming months.