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Markets had a shortened day on Friday, normally not likely to make huge moves but the bond market saw selling on increased optimism that Europe is on the path to coming up with a "plan". More likely treasury prices fell on increasing optimism that Holiday shopping would exceed estimates that were saying sales would be less than last year. The 10 yr note fell 24/32 on Friday to 1.97% +9 bp, mortgage prices down 6/32 (.18 bp) frm Wednesday's close. Friday the stock indexes were lower, -26 on the DJIA -19 on the NASDAQ and -3 on the S&P 500 index.

For the first time in 11 days U.S. equity futures, commodities and the euro advanced as European leaders drafted a framework for the region's bail- out fund and America 's Thanksgiving retail sales jumped to a record, up 16%. The cost of insuring against default on European government debt fell for the first time in eight days. Europe 's bailout fund may insure bonds of debt-stricken countries with guarantees of 20 percent to 30 percent, depending on financial markets, according to guidelines that finance ministers will discuss this week.

This morning the stock market is opening strong; at 9:00 the DJIA futures traded +267 with the other key indexes also up in optimism over retail sales and less pessimism over Europe . All key markets in Europe were trading higher adding more strength to US markets. At 9:30 the DJIA opened +250, the 10 yr note at 9:30 -28/32 at 2.06% +9 bp frm Friday, mortgage prices -7/32 (.22 bp).

US interest rates fell last week but not much; the 10 yr note declined 4 bp and mortgage prices were unchanged. Last week the DJIA took a 565 point hit.

Will the Fed renew buying MBSs? News reports this morning saying the biggest primary dealers are saying the Fed may buy as much as another $545B of MBSs next quarter. 16 of the 21 primary dealers of U.S. government securities that trade with the central bank are predicting the Fed will step up and buy more MBSs to keep mortgage rates low. The Fed bought about $1.7 trillion of government and mortgage debt during QE1 between December 2008 and March 2010, and purchased $600B of Treasuries between November 2010 and June through QE2. With inflation not a problem the Fed has the opportunity to print more money in an effort to keep mortgage rates low, however if treasuries edge higher the best we can expect is that MBS prices won't decline as steeply. "A few members indicated that they believed the economic outlook might warrant additional policy accommodation," the Fed said in the minutes released Nov. 22 in Washington . Bernanke, at a press conference after the meeting, said the "pace of progress is likely to be frustratingly slow."

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