Treasuries have yet to continue yesterday's rally. The 10-Year Treasury, which began the month yielding 3.37%,  strengthened by nine basis points Wednesday to close at 3.65%, breaking a seven-day streak of rising yields. But overnight it weakened two basis point to 3.68%. 

"It has been a mixed week for these U.S. auctions, as the 3-year on Tuesday was weak while yesterday’s 10-year was strong," said economists at BMO Capital Markets, noting the indirect bid was a record 71%.

Equities are sharply lower this morning ahead of the latest jobless claims report, the Treasury’s budget statement, and a series of corporate earnings.
 
Ninety minutes ahead of the opening bell, S&P 500 futures are down 6.25 points to 1,312.50, and Dow futures are 54 points lower at 12,153. A late rally yesterday helped the Dow continue its winning streak for an eighth session, while the S&P shed 3.7 points.

Commodity prices are mostly lower. Light crude oil is trading 0.42% lower at $86.34, while gold prices are 0.57% down at $1,358.

Economists at BMO note that risk aversion is boosting the US$ index, as all the major currencies are weakening against the greenback.

Key Events Today:

8:30 ― Initial Jobless Claims for the week ending Feb 5 are anticipated to fall 3k to 412k, a figure well-below the four-week average of 436k. Claims have been volatile lately due to snowstorms ― ranging from 391k in late December to 457k in mid-January ― and this report should be no exception. 

“We see the four-week moving average, currently about 430k, as indicative of healthy employment growth continuing in 2011,” said economists at Nomura.

Economists at BMO say the data are unlikely to be clean, given that the country was hit by monstrous storms that hammered the Midwest, the Plains, the South and the Northeast. "The storms touched 30 states and affected a third of the U.S. population," they noted.

10:00 ― Wholesale Inventories are expected to rebound by 0.7% in December following a 0.2% cutback one month before. The growth is part is part of a broader trend of re-building inventories, as businesses are expecting the economic recovery to take firmer shape in 2011. 

However, economists at Nomura point out that changes in private inventories were “an enormous drag on real GDP growth in Q4, subtracting 3.7 percentage points. They said a 0.5% increase would be consistent with the GDP report from a few weeks ago, and that any number below that figure would suggest downward revisions to Q4 growth.

12:40 ― Dennis Lockhart, president of the Atlanta Fed, participates in a panel discussion on public debt management and fiscal policy to the U.S.-Swiss Dialogue in Atlanta.

1:00 ― Treasury auctions $16 billion 30-year bonds

2:00 ― The Treasury Budget for the first month of 2011 is expected to show a deficit of $60 billion. That may not sound too bad compared with the $80 billion deficit a month before, but January is typically a surplus month. Bloomberg notes the average surplus for the month has been $21.3 billion for the past decade. Last year, however, it was a $42.6 billion deficit. One reason the deficit is expected to grow: the payroll tax cut.
Treasury Auctions:

2:00 ― The Federal Reserve releases an updated approximate purchase amount and tentative outright QEII Treasury operation schedule.  At that time, the Desk will also publish information on prices paid for securities included in the operations listed above.