There is very little to trade off today. The U.S. serves up another belly full of seven year notes after Tuesday’s auction went well. Don’t forget that no one said investors have lost their appetite for debt at this point – the reality of a recovering economy and the removal of emergency liquidity measures simply means that at some point official rates will rise. Precisely when remains the number one guessing game in year-end financial media circles. The bottom line remains that recovery, stimulus removal and an ongoing gush of supply means the government faces a rising interest bill on newly minted notes and bills. An overnight warning from ratings agency Standard & Poor’s over Japan’s dicey debt burden hurt the Japanese yen and along with the continued rise in U.S. note yields, the spread between comparable Japanese and U.S. 10-year maturities stood at its widest in two years at around 250 basis points. The recent dollar outperformance against the yen is largely attributed to the raft of support it’s getting from the rising yield curve. U.S. stock prices pared heavier losses after the Chicago area PMI came in slightly stronger than expected at 60.1 after a 56 reading in November. Investors had braced for a decline to show a slower pace of expansion. Readings above 50 indicate expansion and below that level show contraction. However, bond prices failed to cede further ground in spite of the report since the materials sector is leading the equity patch lower. Commodity prices are having a hard time rallying faced with the headwinds of a dollar that has once again perked up in light of today’s report.

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