Both Treasury yields and S&P futures moved mostly sideways in Asian trading before making a directional move as London came back  to work around 3AM eastern time. Since then stocks have looked to extend gains from 26-month highs, which were hit on Monday, and benchmark Treasury yields have continued to chop around a well-defined range in advance of the Employment Situation Report on Friday.

Seventy minutes before the opening bell, S&P 500 futures are 2.50 points higher at 1,267.50 and Dow futures are 40 points ahead at 11,625. To start the year yesterday, the S&P climbed 14.25 points and the Dow jumped 93.24 points. Each hit the highest levels seen since early September 2008. “This follows the best December rally in 19 years, which capped a 12.8% advance in 2010 and puts the index less than 20% below its October 2007 peak,” said economists at BMO Capital Markets, speaking of the S&P 500. Global equities are also on the rise. Japan’s Nikkei jumped 1.65% to a seven-month high, China’s Shanghai index expanded 1.59%, and London’s FTSE 100 is currently up 2.39%.

The 2.625% coupon bearing 10-year TSY note is +5/32 at 94-06 yielding 3.321%. The 10-year Treasury rose as much as three basis points overnight to 3.37%. The 2s/10s curve is 2bps steeper at 274bps wide. Trading volumes have picked up a bit as London came back to work this morning after being out yesterday.  The Fannie Mae 4.5 MBS coupon is +2/32 at 102-22.

The day ahead is relatively light on macroeconomic data, but in the afternoon the market will be eyeing commentary from the Fed’s last policy meeting.

Key Events Today:

10:00 ―  Though not nearly as scrutinized as Monday and Wednesday's ISM numbers, factory orders for November are expected to have fallen a marginal 0.1 percent, compared with a dip of 0.9 percent the month before. Forecasts ranged from a fall of 1.0 percent to a rise of 1.3 percent. Durable goods orders have already been released and showed a 1.3 percent decline that was led by transportation despite a solid 2.4 percent rise excluding transport.

10:15 ―  The Fed will purchase an estimated $1-2 billion in Treasury TIPS coupons maturing between 7/15/2012 and 2/15/2040

2:00 ― Commentary on how appropriate a second round of quantitative easing was may be key to the FOMC Minutes. Monetary policy was left unchanged at the latest Federal Open Market Committee meeting on Dec. 14. The policy statement was nearly identical to the previous one, as the Fed noted the economic recovery was continuing at an insufficient pace to reduce unemployment. The central bank also indicated it would complete its $600 billion Treasury purchase program, despite notable criticism in the weeks preceding the meeting. 

“The minutes will likely reveal that, except for dissenter Hoenig, there is widespread support to continue purchasing Treasury notes as planned to hold down long-term rates and reduce the unemployment rate and risk of deflation,” said economists at BMO.

In an earlier note, BMO suggested that the market’s QE doubts “could become even stronger as 2011 starts up, once consumer spending finds some lift from the cut in social security withholding taxes.” They noted, however, that the 2011 lineup of voting Fed presidents “appear to be slightly more pro-QE than the outgoing group.”