Treasuries and mortgages opened a little soft early this morning with Europe's stock markets better and trade in US futures pointing to a better open at 9:30. At 8:30 Nov retail sales were not as strong as expected; sales were up 0.2% both for the overall and excluding auto sales, expectations were for both sales to be up 0.6% overall and +0.5% ex auto sales. The weaker sales didn't impact either the stock or bond markets, both held where they were prior to 8:30.

In Europe Spain sold more securities than expected and a report showed that investor confidence in Germany improved. Nothing has changed from yesterday. Europe's banks are beginning to sell assets that generate profits to increase capital that is demanded from decisions by European regulators to make banks increase core capital to 9% by June instead of 2019. Euro banks' can't successfully sell stock or get anyone to buy their debt holdings with values so low banks would have to book losses. Selling businesses that generate profits will further slow recovery in the region but with the inability to provide debt relief through the EU, ECB or IMF selling off assets is the only course left. Banks across Europe have pledged to cut more than 950 billion euros of assets over the next two years, about two-thirds of that will come from sales of profitable units and performing loans.

At 9:30 the DJIA opened +60, the 10 yr note -11/32 at 2.06% +4 bp; mortgage prices -5/32 (.15 bp).

At 10:00 Oct business inventories were expected up 0.9%, as reported up 0.8%; sales +0.7% leaving a 1.27 month inventory supply. No reaction to the report.

Treasury will sell $21B of 10 yr notes at 1:00, the auction should go well with strong bidding. Recent treasury auctions have met with strong demand as was yesterday's $32B 3 yr note sale.

The FOMC is meeting today in a one day meeting; the policy statement will be released at 2:15. Most Fed watchers are expecting a slightly better outlook on the economy from the group. There is little belief the Fed will launch a QE 3 as had been hoped a month ago. Two weeks ago the view among dealers was that the Fed would likely increase its purchases of MBSs to assist in keeping mortgage rates low; there hasn't been anymore talk about it since then. With the economy looking better based on recent data the Fed isn't likely to see the necessity in more easing of any type.

Trade this morning is likely to be quiet ahead of the auction and the FOMC statement at 2:15 this afternoon. The Fed is very unlikely to issue a statement that will surprise; the Fed is doing everything it can to not roil markets anymore than what Europe is already doing to global markets.

Regardless of the constant run of news reports out of Europe, and the lack of any significant near term progress (the summit last week focused on fiscal union among members that will take months if not years to resolve) and didn't address how the debt messes would be dealt with; the US rate markets have not continued to improve. The 10 yr note has a brick wall at 2.00% and another at 2.12%; for over a month and against all the negativity out of Europe's fumbling the long end of the yield curve has been essentially unchanged. The fears of debt defaults in Europe have lessened a little while the US economy has shown improvement albeit small; Europe will continue to keep US rates low but pulling the other direction is what appears to be a better economy. Neither issue is a lock, the end result is current stagnation in the interest rate sector.