Prior to 8:30 this morning the bond and mortgage markets were slightly weaker; at 8:30 the bond market found some support when weekly jobless claims and Q1 GDP revision were released. Weekly jobless claims were expected to have declined 5K to 9K to 400K, claims increased 10K to 424K and last week's claims were revised slightly higher from 409K to 414K. Continuing claims however continued to decline, 3.69 mil frm 3.736 mil last week as more are losing their unemployment. Q1 GDP on the advance report last month was +1.8%, the preliminary report this morning was widely expected to be revised to +2.0% to +2.2%; as released GDP was unchanged at 1.8%. Consumer spending in Q1 was revised from +2.7% to +2.2%; we have repeatedly warned that consumers will not increase discretionary spending with home prices falling and unemployment high. The market reactions to the two data points turned treasury prices and mortgage prices higher. At 9:00 the 10 yr +5/32 at its critical 3.11% and mortgage prices +4/32 (.12 bp).

The two data points at 8:30 took a lot of steam out of trading in the stock index futures, although all key indexes remain better going into the 9:30 open. At 9:30 the DJIA opened -30, the 10 yr 3.11% +6/32, mortgage prices +3/32 (.09 bp).

At 1:00 this afternoon Treasury will complete this week's $99B borrowing with $29B of 7 yr notes, so far the 2 and the 5 went well, most expect the 7 yr auction will also see good bidding.

Europe's debt problems do not get any better, only worsening. This morning a former European Central Bank Chief Economist Omar Issing commented that Greece will probably not be able to meet its obligations. "I'm skeptical about Greece," said Issing, who joined the ECB a year before the euro's inception in 1999 and stayed there until 2006. "Greece is not just illiquid, it's insolvent." The region's debt crisis, which has also forced Ireland and Portugal to seek bailouts, has left the euro in a "critical" condition. Europe's debt problems and the economic outlook in the US are key factors why US interest rates are this low. Safety moves away from equities at the moment and what is likely a default by Greece and possibly other EU countries is keeping investors in safe mode.

Here we are again; the 10 yr note at 3.11%, the 4.0 30 yr FNMA coupon not able to break above its 200 day average. Although this is only Thursday there is a long week-end ahead with US markets closed Monday and an early close in the bond market tomorrow, the bond market should hold well today and tomorrow. Traders won't have any motivation to be heavy sellers in the bond market as Europe continues to provide support with all its critical debt problems.

Crude oil and gold lower to start this morning; crude down $0.23 at 9:30, gold -$2.90 (see below for 10:00 prices).

The Q1 GDP report this morning confirms that the US economy is still struggling; most every economist had forecast GDP would come at 2.0% or higher on the revision this morning. GDP growth in Q1 at 1.8% is down from 3.1% growth in Q4 2010; Q2 is likely to be even weaker than Q1. The weakening economy will keep the Fed from any plans to increase the FF rate this year and increase the conversation of another easing after QE 2 ends at the end of June. Our economic outlook is a little more bearish than the so called consensus but we don't believe the Fed will embark on another massive easing move. The Fed's QE 2 did nothing to slow unemployment, did nothing to improve the economy and did nothing to help the housing sector----the main drag on the economy. What it did do was push investors into the equity markets, large investors that are now exiting and moving to safe havens. Historic low interest rates have had only a very minor benefit to housing, there is little reason to expect another easing move will change anything.