Tax Deal Looks Likely to Pass Senate Today; Potential for Changes in House Unclear. (Wall Street Journal) "Democrats are predicting that a much-debated tax agreement will clear a crucial hurdle comfortably in the Senate on Monday, with a margin that they hope will add momentum to the deal in the House. But even with President Barack Obama, former President Bill Clinton and a growing number of Senate Democrats backing the deal, House Democrats remained eager to test whether they could push Republicans to raise the proposed tax rate on estates. It wasn't clear how far House Democrats would push such a fight. If a bill isn't passed by the end of the year, tax rates are scheduled to go up, although the White House could block an immediate increase in withholding levels, pending passage of a tax bill by a new Congress next year."
10-Year Yield Rises (CNBC via Reuters) "U.S. Treasurys tumbled in Asia on Monday, driving up their 10-year yields to a new six-month high as Japanese investors kept dumping Treasurys on the specter of higher growth and higher deficits in the United States. The short end of the market is increasingly under pressure as the yield on two-year notes also rose to a near six-month high and federal fund rate futures prices started to price in the chance of a possible rate hike by the Federal Reserve in 2012. That is a sea change from just over a week ago, when comments by Fed chief Ben Bernanke prompted debate among traders over whether the central bank will adopt another round of easing after its current $600 billion debt purchase program expires next June."
Why Investors Are Demanding Greater Treasury Yield (Bloomberg) "Treasury notes fell before tomorrow’s Federal Reserve meeting, pushing 10-year yields to a six-month high, on speculation reports this week will add to signs the recovery is sustainable. The extra yield investors demand to hold 10-year notes over 2-year debt was the highest since April as economists raised growth estimates after President Barack Obama’s agreement to extend tax cuts. Ten-year notes, which declined last week by the most since August 2009, also fell as stocks gained. "
Seeming Paradox? Bond Yields Rise While Borrowing Cots Drop Relative to Size of Economy (Bloomberg) "At a time when U.S. bond yields are rising at the fastest pace in more than a year, the amount the government pays to service its record deficit is the lowest since 2005 compared with the size of the economy. While interest costs rose 8 percent to $414 billion in the fiscal year ended Sept. 30 from $383.4 billion in 2009, they fell to 2.7 percent of gross domestic product from 3.1 percent, U.S. Treasury Department data show. That’s the lowest in five years, when it was the same percentage, and below the 3.6 percent in 2001, when the U.S. last had a budget surplus. Benchmark 10-year Treasury note yields rose last week by the most since August 2009. Bond prices tumbled as President Barack Obama’s agreement to extend Bush-era tax cuts showed the government is ready to increase the deficit to lower the jobless rate at the same time the Federal Reserve prints money to ward off deflation. "
OPEC Signaling Increasing Supply? (Bloomberg) "OPEC is breaching its production limits the most in six years, signaling the world’s biggest suppliers are ready to pump more crude next year as oil rallies toward $100 a barrel. The Organization of Petroleum Exporting Countries excluding Iraq pumped 26.78 million barrels a day this year, exceeding the quotas by an average of 1.934 million a day, the highest level since 2004, according to data compiled by Bloomberg. Crude rose 12 percent in 2010 as demand recovered, trading at about $90 for the first time in two years.
Options to buy at $100 next December are near a five-month high. Flouting quotas lets OPEC, which provides about 40 percent of the world’s oil, boost profits without changing targets set when the first global recession since World War II caused prices to tumble 78 percent. Analysts say the rally may lead the 12- member group to raise output next year after leaving quotas unchanged at this weekend’s meeting in Quito, Ecuador. "
European Markets Slightly Higher as Chinese Central Bankers Hold Rates Constant (Wall Street Journal) "European stocks maintained small gains Monday but on limited volumes as many investors opted to defer taking new positions until the New Year. Still, emboldened by the People's Bank of China's decision not to raise interest rates over the weekend despite evidence of rising inflation, some investors were still willing to buy into equities, particularly basic resources." The raw data: "As a result of China's decision, the Stoxx Europe 600 basic-resources index was up 0.8% at 621.54 at 1135 GMT. The Stoxx Europe 600 index gained 0.4% to 277.33, London's FTSE 100 was up 0.7% at 5854.32, Frankfurt's DAX was 0.3% higher at 7027.62 and Paris's CAC-40 was up 0.8% at 3887.13. Dow Jones Industrial Average futures for March delivery were almost flat at 11,350; Standard & Poor's 500 futures for the same month were also little changed at 1236.30. "