The Day Ahead: Initial Claims, Productivity, Treasury Supply, Fed Speak

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Rise and Shine.

Interest rates have yet to recover from the sell-off that played out following the release of the Fed's Beige Book yesterday afternoon. Stocks on the other hand are holding onto modest gains as oil prices seem to have stalled in the short-run ($102.75 = 61% retrace of 2008 price highs).  Tensions in Northern Africa/Middle East have neither improved or drastically deteriorated over the past 24 hours, although Venezuelan President Hugo Chavez did propose a multinational commission to mediate the violent conflict between Libyan leader Moammar Gadhafi and rebel groups.

The margin squeeze debate we've been discussing over the past two months reared its ugly head in yesterday's Beige Book as producers are planning to pass down higher input costs to consumers over the next months. They are going to try at least. Of course this renewed inflationary fears among U.S. economists.  5-year inflation breakevens widened out 4bps yesterday, most of which occurred after the Fed's POMO at 11am though. READ MORE: MARGIN SQUEEZE

 The day ahead holds an update on one of our favorite topics, productivity! READ MORE. Jobless  Claims, ISM Non-Manufacturing, Fed speak, and a Treasury auction announcement round out a busy day. In Europe, the European Central Bank held interest rates at a record low of 1.0% as expected.  Market watchers are more interested in hearing ECB President Jean-Claude Trichet's logic behind the bank's decision to hold rates steady regardless of rising inflation expectations. His news conference begins at 8:30am.

Benchmark 10s are -5/32 at 101-04 yielding 3.49%. The 2s/10s curve is UNCH at 278bps wide. FNCL 4.5s are -1/32 at 101-19. S&Ps are +12 at 1317.75. NYMEX Crude Oil is -1.22 at 101.01.

Key Events in the Day Ahead....


10:00 - Federal Reserve Bank of Minneapolis President Narayana Kocherlakota speaks on "Labor Markets and Monetary Policy" before the St. Cloud State University Winter Institute. Audience Q&A, slides expected. Media Q&A follow.

10:15- The Fed purchases an estimated $6-8 billion in Treasuries maturing between 05/15/2018 and 02/15/2021

11:00 -  Treasury will announce the size of next week's 3-year, 10-year, and 30-year auctions. No change in offering size is expected.

12:15 - Federal Reserve Bank of Atlanta President Dennis Lockhart speaks on "The Economy and Labor" before the Economic Club of Florida. Audience and media Q&As expected.