The Day Ahead: Durable Goods, Jobless Claims, Treasury Auction Terms

Treasuries traded from a defensive position overnight amid slightly above average volume. The benchmark 10-year note moved in a range of between 3.32% and 3.36% after weakening two basis points in Wednesday's session to 3.35%. AQ and MG point out a breakdown of important 3.34% support but say 3.40% is a much more significant inflection point for 10s.

Rates were on their heels overnight because European stocks are seeing a boost including a 1.06% gain in France's CAC-40 and a 1.10% climb in London's FTSE 100.  U.S. equity futures continue to rally following a 67-point gain in the Dow Wednesday and an ongoing positive session in European markets.  S&P 500 futures are 9.50 points higher at 1,301 while Dow futures are 71 points higher at 12,092. The Asian session was mixed - stocks fell 0.06% and 0.15% in China and Japan, but rose 0.39% in Hong Kong .

The equity rally occurs despite contagion in the Eurozone debt crisis. Portugal moved one step closer to a bailout package after rejecting the Prime Minister's austerity plan Wednesday, a move that will bring down the current minority Socialist party, according to economists at BMO Capital Markets.

"For now, investors have taken comfort in the view that the beefed-up EU rescue fund is more than large enough to withstand a Portuguese bailout  - the third among the 17 euro nations to need one - and prevent systemic risk to Europe's banking system," they wrote. "Of course, this hinges on a belief that Spain - the fourth largest Euro-zone economy - is strongly committed to its austerity plan."

Continued uncertainty in the Middle-East helped drive light crude oil prices to their highest levels since September 2008 on Wednesday. Overnight they moved 0.61% higher and now stand at $106.37 per barrel. Gold prices continue to benefit too - up 0.28% at $1,442.20 per ounce.

Key Events Today:

8:30 - New Orders for Durable Goods are anticipated to climb a robust 1.5% in February. The January index took flight with a 2.7% increase led by civilian aircraft orders. That helped break a three-month downward trend, yet excluding transportation the pace of new orders actually fell 3.6% in month. Orders for equipment fell 14.4%, machinery dropped 13.0% and computer orders declined 9.6%.

"As overall durable goods data were distorted by a big jump in aircraft orders in January, a better indicator of underlying behavior is orders ex-transportation, which we expect to have expanded by 1.2% in February," said economists at Nomura Global Economics, who look for a 0.1% increase overall. "The new orders component of February's ISM manufacturing index, which reached its highest level since January 2004, supports our positive outlook."

Aircraft orders are expected to improve for a second month, following a dismal December reading, said economists at IHS Global Insight. 

"The underlying trend for durables orders remains strongly upwards, as indicated in all major national and regional surveys of manufacturers," they added.

Janney Capital Markets had mixed forecasts on various categories, with higher industrial metals prices driving primary and fabricated metals orders upward during the month. 

"The biggest headwind we see for durables orders is a brief slowdown in goods exports in January," they said. "Our modeling suggests [this] will limit orders' expansion in February, though the impact is likely to be short lived, especially given impressive prospects for developing market demand for capital goods."

8:30 - Initial Jobless Claims are expected to register at 385,000 for the second week in a row, after falling by 16k in the prior week. The current four-week average is 386k - the lowest since July 2008. Economists at BTMU say these strong figures suggest private payroll growth of +200k.

"There has been a downward trend in claims since the start of 2010," economists at BTMU said, adding that the trend has been obscured because of holiday and weather distortions from November through January.

11:00 - Treasury announces the terms of 2-year, 5-year, and 7-year debt auctions to be held next week.

Treasury Auctions

• 1:00 - 10-Year TIPS ($11 billion)