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NEW YORK, April 9 (Reuters) - U.S. mortgage bond prices
fell in a shortened session on Thursday ahead of the three-day
Easter weekend, but the sector recovered strongly from heavy
losses after last Friday's robust U.S. jobs data.

MBS trading on Thursday was muted, and prices bounced in a
tight range with little conviction from buyers and sellers,
analysts said.

MBS prices closed 1/32 to 9/32 lower, moving in line with
U.S. Treasuries after beating them handily the prior two days.

Bond equivalent yields on 30-year, 5-percent issues were up
6 basis points to 8 points from late Wednesday.

"The current-coupon (issues) outperformed their hedge
ratios," said Walt Schmidt, manager of mortgage strategy and
research at FTN Financial. "We had strong MBS buying" this
week.

For the week, current-coupon MBS fared better than
comparable Treasury by 10/32 and their yield premium narrowed
by 0.10 percentage point, according to analysts.

The benchmark 10-year Treasuries <US10YT=RR> fell 7/32 to
yield 4.19 percent, up from 4.16 percent at Wednesday's close.

The Bond Market Association recommended that the market
close early at 2 p.m. EST (1800 GMT) and reopen on Monday.

This week's stabilization of Treasury yields, and industry
data showing a slowdown in refinancing activities, soothed
worries that rising Treasury yields would hurt the values of
mortgage bonds, analysts said.

Last week's Treasury selloff, in response to a huge
increase in payrolls in March, pushed up their yields and sent
mortgage rates to their highest levels since early January.

Average interest rates on 30-year mortgages rose more than
a quarter percentage point this week to 5.79 percent, its
highest level in three months, Freddie Mac said on Thursday.

These rates heightened fears that the duration of mortgage
bonds would extend quickly because higher rates would clamp
down mortgage refinancing and prepayments.

Treasury yields stabilized after Monday. While still near
the high end of this year's trading range, Treasury yields have
not reached critical levels that would dry up refinancing.

Until the 10-year Treasury yield breaks out of the 4.00
percent to 4.25 percent range, mortgage bonds are unlikely to
repeat this week's strong performance, Schmidt said. "It's
going to be very directional," he said.

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