Equity futures are pointing to a strong open this morning following President Obama’s announcement late yesterday that he had struck a deal with Republicans to extend the Bush-era tax cuts for two years in exchange for the extension of unemployment benefits for another 13 months.

S&P 500 futures are 11.75 points higher at 1,233.75 and Dow Futures are 82 points higher at 11,435.  Light crude oil is trading 1.52% higher at $90.74 per barrel ― a two-year high ― while gold prices are 0.52% higher at $1,430.65 per ounce.

Global optimism in equities has sucked the bid in Treasuries dry. The yield curve is steeper with 2s/10s at 257bps wide, its steepest shape since May. The 10 year note is the biggest loser with a 26/32 price decline and a 9.7bp increase in yield to 3.026%. Weakness in the long end of the yield curve has led production MBS coupon prices to unwind almost all of yesterday's positive progress. The January delivery Fannie Mae 4.0 MBS coupon is -13/32 at 100-16. Rate sheets will be worse this morning.

Obama’s deal also includes reducing the payroll tax by two percentage points for a year. “We have got to find consensus here because a middle-class tax hike would be very tough, not only on working families, it would also be a drag on our economy at this moment,” Obama told an audience before the deal was announced.

Later, he added: “I know there are some people in my own party and in the other party who are willing to let this fight continue. I'm not willing to let us slip backwards just as we're recovering form this devastating recession.”

Key Events Today:

10:15 ― Fed buys $6-8 billion Treasury coupons maturing between 12/31/14 and 05/31/16

3:00 ― Consumer Credit is expected to be flat in October, following a $2.15 billion increase in outstanding credit a month before ― the first expansion of credit in 2010.
Estimates from the 26 economists polled by Thomson Reuters range from a $5 billion contraction to a $6.8 billion increase. 

The September report was an anomaly rather than a reversal of underlying trends. Revolving credit ― typically used for daily operations, including credit cards ― fell by $8.3 billion in the month, marking its 25th straight drop, while non-revolving or installment credit grew by $10.4 billion because federal student loans rose $27.0 billion. 

“It is important to note ... that trends in the two main types of consumer credit have diverged,” said economists at Nomura Global Economics. “Revolving consumer credit (credit cards) continues to decline nearly unabated. Non-revolving consumer credit (auto loans, etc) have begun to increase, consistent with the pickup in durable consumption.”

Nomura believes an increase in outstanding credit is unlikely to be repeated in October. 

Economists at BBVA added that automobile sales are “trending marginally higher” and add some support to non-revolving consumer credit, but they still expect slashes to revolving credit, “in particular outstanding pools of securitized credit card balances and formerly-securitized credit card pools returned to financial institutions’ balance sheets.”

Treasury Auctions:

• 11:30 ―4-Week Bills
• 1:00 ― 3-Year Notes