Treasuries headed for the biggest advance in 11 weeks after President Barack Obama won re- election. U.S. equity-index futures declined, erasing earlier gains and gold climbed for a third day. At 8:30 the DJIA futures traded at -123, yesterday the DJIA closed +133.

Treasuries and MBSs are rallying strongly this morning on the results of the election based on the view that the Fed will continue easing whereas if Romney had won he was thought to be ready to end the monetary stimulus, at least at the magnitude is now. He said he would not re-appoint Ben Bernanke when his term ends early 2014. In that regard Bernanke will not likely seek another term even with President Obama winning the election. Nevertheless this morning traders and investors are betting on weaker growth and more Fed stimulus. So far the Fed has helped keep the U.S. economy growing by purchasing $2.3 trillion of Treasuries and mortgage-related bonds and instituting a plan to buy $40 billion of home-loan securities a month. Romney talked about increasing taxes, that didn't go down well, while Obama must deal with the "cliff" coming he is seen as less cuts and less tax increases than Romney. President Obama got 303 electoral votes compared to 206 for Romney (Florida still hasn't yet been decided), but Republicans held the House while Democrats remained in control of the Senate. In that respect nothing is different now than prior to the election.

According to Bloomberg data, since Lyndon Johnson defeated Barry Goldwater back in 1964, when a Democrat has won the White House the 10 yr note yield has fallen 40 basis points in the following month, while when a Republican wins the note yield increased by 19 basis points. If that holds this time the 10 yr note would test the low yield set back in July at 1.40%. Whether or not that will occur again is questionable but the decline in the 10 yr note rate this morning is adding additional bullish technical bias.

The impact on markets from the election results are not likely to be well defined for a few days or more. Nothing has changed in terms of the make-up of the White House, the House or the Senate. Looking beyond the election Europe is climbing back into focus. The European Commission today cut its growth forecast for the euro zone. The 17-nation euro economy will expand 0.1% in 2013, down from a May forecast of 1.0%. It cut the forecast for Germany, Europe's largest economy, to 0.8% from 1.7%. Europe's economies are declining leading to slower growth in the US. Retail sales decreased more than economists estimated, a report showed today. Sales fell 0.2% from August, when they rose 0.2%, the European Union's statistics office in Luxembourg said. Economists had forecast a decline of 0.1%. German stocks fell, erasing yesterday's gains, as the European Commission cut its growth forecast. Greek lawmakers vote today on an austerity bill that contains austerity measures demanded by the so-called troika that oversees euro-area bailouts insists. A 31.5 billion-euro ($40B) aid payment has been frozen since June.

At 9:30 the DJIA opened -143, NASDAQ-39, S&P -15. The 10 yr note yield 1.64% -11 bp; 30 yr MBS price +79 bp frm yesterday's close.

This afternoon at 1:00 Treasury will auction $24B of 10 yr notes; yesterday's 3 yr auction was on the weak side in terms of demand. At 3:00 Sept consumer credit is expected +$10.0B.

Let's give this a few days for markets to settle down. Today and yesterday have been quite volatile, the implications of volatility is uncertainty; look for more of it today and over the next week or so. That said, the election and the renewed interest in the EU debt mess are combining to drive interest rates down. Some are now outwardly calling for the 10 yr note to fall to 1.40%, the low last July, and possibly below it. We still don't agree with that, but we have to respect the action and this morning it looks quite bullish at the moment. The 10 yr this morning is 25 bp frm the July low, not an insurmountable task but to get there the economic outlook has to weaken for the US and Europe, and the Fed has to add more stimulus---both possible but at this point we don't agree.