Bonds started slightly better today, mortgages also better after yesterday's declines in prices. In the EU-Cyprus banking crisis nothing has been achieved so far, the country has extended its bank holiday until next Monday, keeping banks closed. The country was unable to negotiate any deal with Russia so far. The ECB taking a strong stand, saying it will cut Cypriot banks off from emergency funds after March 25 (Monday) unless the island agrees on a bailout with the European Union and International Monetary Fund. "The Governing Council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance, ELA, until Monday, 25 March 2013," the Frankfurt- based ECB said "Thereafter, ELA could only be considered if an EU/IMF program is in place that would ensure the solvency of the concerned banks." Cypriot banks have relied on ELA funding from their own central bank since they were cut off from regular ECB refinancing operations in June following the downgrading of the country's credit rating by all three major rating firms to junk status.

The recent sharp decline in US and German long term rates was what now appears more of a knee-jerk reaction to the banking crisis in Cyprus. Investors initially fearing that if the country actually took money frm bank depositors that was being forced on the country, it would lead to the same demands on bank deposits in Italy, Spain and Portugal. After a few days and no additional buying of US or German notes and bonds, and after further thinking, it now appears that the Cyprus banking crisis is not likely to spread. It is now seen as a non-event in terms of the EU or any contagion fears. Even if Cyprus leaves the EU, based on how markets are reacting, the fear factor that drove rates lower is not likely to continue----at least that is the view at the moment. The next issue now will focus on what happens on Monday and how markets react to whatever occurs.

This morning weekly jobless claims were thought to be up 7K to 340K; as reported claims were up 2K to 336K and last week's claims were revised from 332K to 334K. The four-week moving average of claims, a less-volatile measure, dropped to a five-year low of 339,750 from 347,250. Recent employment stats have been much better than most forecasts; in Feb job creation increased 336K and 119K new jobs in January, and the unemployment rate fell to 7.7% in Feb, lower than 7.8% expected. Based on recent data, the employment sector is gaining momentum; the Fed however isn't likely to bite just yet. Bernanke will want more confirmation before seriously thinking of reducing the $85B monthly purchases of treasuries and MBSs.

At 9:00 the January FHFA housing price index was expected at +0.7%, as reported the index increased 0.6%; yr/yr prices were up 6.5% frm Dec yr/yr of 5.6%.

US stock markets opened weaker this morning, improving the bond market but not much in the mortgage world. The DJIA opened -64, NASDAQ -25, S&P -8. At 9:30 the 10 yr note at 1.93% -3 bp and 30 yr MBS price not much changed, up just 4 bps. The stock market has lost a little luster recently with the S&P unable to make a new high. Very nervous here and in Europe; at about 9:30 a Russian "official" out on the wires saying the Cyprus baking crisis is a long way frm being resolved. The immediate reaction sent US treasury rates and German bund market lower (rates). Volatility in markets continues.

More data at 10:00. Feb existing home sales expected up 2.8% at 5.01 mil units (annualized); as reported sales were up 0.8% to 4.98 mil units; single family sales down 0.2%. There was an increase in the inventory level for the first time since Apr 2012 at 4.7 month's supply, the median sales price $173,600. Feb leading economic indicators were expected +0.4%, as reported up 0.5% and Jan was revised from +0.2% to +0.5%. The March Philadelphia Fed business index, expected at -1.5 frm -12.5 in Feb, the index increased to +2.0. There was no reaction to the three reports, even though on balance they were better than estimates, the bond and stock market didn't budge on the releases.

The improvement in the bond market today is mostly due to the soft stock market rather than safe haven buying over the EU/Cyprus banking crisis. Stocks weaker following Europe's markets and concern that the broad S&P 500 could not make a new high after moving to with five points two times in the past few sessions.