The Day Ahead: Double Duty for the Fed's Trading Desk, Retail Sales Index, ABC Consumer Comfort

Good Morning.

Treasury trading was very limited in the overnight session. Benchmark 10s ticked up to 3.357% on the Asian open and moved sideways from there until London got underway and a modest bid made it's way into the long end of the curve and pushed 10s as low as 3.295%.

The 2.625% coupon bearing 10 year note is currently +8/32 at 94-08 yielding 3.311%. The 2s/10s curve is 3bps flatter at 271 wide.  The FNCL 4.5 is UNCH at 101-31. The FNCL 4.0 is +2/32 at 98-26. The secondary market current coupon is less than a bp lower at 4.139%. Yield spreads are slightly wider vs. benchmarks. Trading volumes are very low in the rate sheet influential end of the yield curve. 

Asian markets surged as tensions between North and South Korea seem to have eased somewhat. China’s Shanghai index closed 1.79% higher, while Japan’s Nikkei index jumped 1.51% and shares in Hong Kong leapt 1.57%. The gains occurred despite the Bank of Japan declaring that “the recovery seems to be pausing” and that “Japan's economy is likely to grow at a slower pace for some time.”

European stocks are also on the rise despite Moody’s issuing a downgrade warning for Portugal. The FTSE 100 is currently up 0.84% and the Dax in Germany is +0.80%. Here in the U.S., S&P 500 futures are +5.00 at 1246.25 and the US$ index is weaker ― down 0.42% at 80.29

Key Events Today:

8:55 - Redbook releases its Retail Sales Index of department and chain store sales for December versus January, 8:55 a.m. In the prior period, sales fell 0.1 percent.

5:00-  ABC News releases its consumer comfort index for the week ended Dec. 19 versus the prior week, 5 p.m. In previous week, the index read -43.

The Fed will conduct two Permanent Open Market Operations today. They will buy an estimated $7-9 billion in Treasury notes maturing between  June 2016 and November 2017. They will also lift an estimated $1-2 billion of long-dated TIPS.

Stuff to talk about....

(Reuters)- Portugal was put on notice on Tuesday that its credit rating could be cut and fellow euro zone debtor Spain had to pay more to issue new debt, suggesting the currency bloc's crisis will rage unabated in 2011.

(Reuters) - China on Tuesday urged North Korea to follow through on its offer to allow U.N. nuclear monitors into the country as a way to alleviate international tensions during a standoff with the South.

(WSJ) - Sens. Saxby Chambliss and Mark Warner said Monday they would introduce legislation early next year that mirrors the recent report by the White House's debt-reduction panel, in an effort to promote a conversation on the country's fiscal problems.

(WSJ) - China Supports EU Crisis Measures As Two Parties Discuss Trade

(WSJ) -  Tomorrow morning the Federal Communications Commission (FCC) will mark the winter solstice by taking an unprecedented step to expand government's reach into the Internet by attempting to regulate its inner workings. In doing so, the agency will circumvent Congress and disregard a recent court ruling.

(WAPO) - Did you wake up in the wee hours of the morning to watch the lunar eclipse?