Last Friday the bond and mortgage markets were little changed I the shortened day; the US stock market had a strong day however with key indexes rallying. The DJIA +172, the 10 yr note rate 1.69% unch frm last Wednesday and 30 yr MBSs -6 bp. This morning at 8:30 the 10 yr note traded down 3 bp to 1.66% with 30 yr MBS prices up 20 bp frm Friday's 9 bp decline. US stock indexes in the futures markets traded weaker early implying a weak open at 9:30. There are no scheduled economic releases today but the rest of the week has data each day along with treasury auctioning $99B of notes starting Tuesday.

US retailers reporting sales were up 13% frm last year for the Black Friday weekend. Spending in stores and online rose to $59.1B in the four days starting Nov. 22, the National Retail Federation said in a statement yesterday. A year ago, sales advanced 16% over the holiday weekend. Retailers have turned Black Friday into a week's worth of deals, with earlier openings and online offers. Thanksgiving Day, once reserved for family gatherings, saw the number of shoppers rise to more than 35 million from 29 million last year, the NRF said. People spent an average of $423, up 6.3% frm last year.

US interest rate following the lead in Germany with its 10 yr bund down 1 bp in yield; in Italy its 10 yr at 4.77% down 2 bp while Spain's 10 yr unchanged since last Friday. Europe's stock market weaker today on the US fiscal cliff and the never-ending Greek debt crisis. The EU unable to agree on a budget that is suitable to allow the next tranche of money for Greece to avoid default. Here in the US, after the Thanksgiving holiday, markets are back to focusing on the fiscal cliff with comments from both parties that have not changed. Republicans want to cut loopholes in the tax code while Democrats insisting on increasing taxes for the so-called wealthy. This is going to go on until the later part of Dec and in the end there will be an agreed extension to the current tax cuts until next year. Pushing the problem down the road is what Congress and the Administration have made an art form.

At 9:30 the DJIA opened -60, NASDAQ -7, S&P -6. 10 yr note 1.66% -3 bp; 30 yr MBSs +24 bp.

"Uncertainty" about the fiscal cliff, debt limits and the long-term challenges of balancing the U.S. budget are already "affecting private spending and investment decisions and may be contributing to an increased sense of caution in financial markets, with adverse effects on the economy," Fed Chairman Ben S. Bernanke told the Economic Club of New York last Tuesday. Efforts to boost employment and spur the expansion with purchases of $40B in housing debt each month are being impeded by the budget impasse, Bernanke said. Bernanke also admitted in a circuitous way that the Fed is about out of bullets to improve the employment sector (which hasn't worked so far with all the Fed money printing). It is up to Congress and the Administration.

There are no economic reports out today but the week does have a number of key data points and Treasury auction $99B of notes.

US interest rates are likely to continue to trade in their narrow ranges. The fiscal cliff comments that will emerge each day and issues in Europe will dominate. The status of the economy seems to be well understood by most traders; like the 3 bears, not too hot but not to cool either. The stock market is suspect through the rest of the year, it remains bearish from a technical perspective with increasing thoughts the key indexes will decline through the remainder of the year. Given the recent action in the bond market when the stock market has seen heavy selling, it is unlikely that any selling in equities will lead to a major rate decline. If lower rates are in the picture it will have to be on a total failure to avoid the cliff, which we don't expect will happen.