Thursday, December 29, 2011

Goldman Sachs lowers SHLD price target to $30 a share today and reiterates its Sell recommendation.

Italy had a reasonably good six-month auction last night, and its 10-year bond yields are down by about 19 basis points, to 6.70% this morning. (Spanish yields are off by 25 basis points, while German and French yields are unchanged.)

A total of 9 billion euros was bought in the auction, in line with consensus, at a yield of 3.25% (the lowest level since October). Bid-to-cover was almost 1.7 v. 1.5 a month ago. Yields at that time were over 6%.

Italy also sold 1.7 billion euros of two-year zero-coupon bonds at an average 4.85% (a month ago it was 7.8%).

Tomorrow's 10-year Italian bond will be more of a test.

The ECB reported a record amount of deposits (452 billion euros vs. 412 billion euros), as market liquidity is still uncertain and raises the specter that the LTRO facility will not materially benefit sovereign debt yields/purchases. This probably offsets the better auction with regard to the impact on risk assets today.

Finally, Japanese industrial production contracted by 2.6% last month. This was worse than expected and represented the first drop in two months.