The Fed raised its overnight rate by 25 bps for the first time in nearly a decade on December 16th, an event that has yet been fully digested by the financial markets. Although trading volume has been significantly lessened due to the holidays, yields have moved higher across the curve. The immediate impact has been the potential for rising interest expense for corporate America as high yield spreads have widened by as much as 100 bps. But, the longer view, as evidenced by short duration UST bills and notes breaking through all recent support levels is of great concern. (The 2 year UST note is trading at its highest yield since April 2010, turning momentum bearish.) The yield curve has flattened modestly, peaking at 5 years, with the 5 year UST note continuing to trade in a fairly tight range. Going forward into the first few months of the new year we look for trading volume back to normal, foreign investors returning in full force, commodity prices remaining weak, and inflation staying below 2%. Hopefully, the Fed will not drag down the economy by surprising us with another rate hike in January, which is not expected. The spread between the 1 year and 2 year UST note looks attractive at current levels. It makes very little sense to extend out past 2 years at this time.