Treasuries started better this morning and slightly broke the resistance level at 1.58% to 1.57%.

Early activity in the MBS markets was unchanged at 9:00 this morning. Interest rates fell in Europe, the US markets followed. At 8:30 weekly jobless claims were expected to have declined to about 375K/380K, as reported claims were down 25K to 370K as the impact of Sandy has waned with claims now back to levels that existed prior to the storm. The four-week moving average, a less volatile measure than the weekly figures, rose to 408,000 last week from 405,750. The number of people continuing to receive jobless benefits dropped by 100,000 to 3.21 million in the week ended Nov. 24. There was little reaction in the markets to the data with tomorrow's Nov employment report looming. Europe's equity markets better today on thoughts the US cliff will be avoided; early trade this morning in the US markets were lower at 9:00.</span>

Tomorrow's Nov. employment report is likely to be weaker than recent data.

The present consensus estimates are for non-farm payrolls to increase just 86K, much lower than seen in the past few months, the unemployment rate at 8.0% frm 7.9%. Whatever the report reveals it will be distorted to some extent by Sandy. The uncertain outcome on the Cliff negotiations is also curtailing job creation. Small businesses are not willing to hire now with uncertainty over tax increases, health care costs and the inability to anticipate economic activity in 2013. Yesterday in an interview on CNBC Treasury Sec. Geithner said the Administration is fully prepared to go over the Cliff if it doesn't get the tax increases on the wealthy. Meanwhile some Republicans appear to be weakening their opposition to tax increases; a rack in the dyke for the Administration. Current odds on avoiding the Cliff, based on interviews and comments is about 50/50.

As the Cliff edge approaches the FOMC meeting is scheduled for next Tuesday and Wednesday.

The Fed is on record that it will continue to keep rates low through 2014. One strong support for the bond and mortgage markets is the Fed's continuing its purchases of MBSs ($40B a month) and outright buying of long dated treasuries. Operation Twist, selling short dated maturities while simultaneously buying long dated maturities, will run out at the end of the month. The present consensus is that the Fed will let the Twist expire because the Fed doesn't have enough short-dated maturities to continue; the Fed will continue buying long term treasuries outright possibly increasing the amounts. The announcement of the Fed's plan should come at the FOMC meeting next week.

DJIA opened down 4 points, NASDAQ -7, S&P -2. The 10 yr note at 9:30 1.57% -2 bp; 30 yr MBSs +12 bp. ECB's Draghi saying today saying "Weak activity is expected to continue into next year" at a press conference in Frankfurt after the central bank's policy meeting. "The governing council continues to see downside risk for the euro area that relates to sovereign-debt risk." The reaction to his comments sent the German 10 yr bund down 3 basis points in yield, to 1.31%, the lowest since last August. The rate decline is pushing US 10 yr note lower in yield this morning.

Uncertainty about the Cliff resolution is keeping the bond market from increasing (rates).

Tomorrow's employment report is thought to be weak, adding to support today. The stock market is flat so far today; Apple stock falling on concerns sales of IPhones is slowing, that has dropped the NASDAQ and soured the entire market. The technicals remain bullish for the 10 yr and 30 yr MBSs but the strength is mediocre at best. Nevertheless at the start today rate markets have improved.