Peanuts, beer, 3 yr loans here! Today, European banks tell the ECB how much borrowing they want to do at 1% for 3 yrs. Tomorrow we’ll hear how much they took and forecasts are about 300b euros. While some are still speculating that banks are buying short term sovereign debt after selling it for the past few months, yields in Spain, Italy, Belgium and others are down again. Also, another good Spanish sale of short term bills is helping sentiment. Spain sold 3 month debt at a yield of 1.74%, well below the 5.11% paid last month and they paid 2.44% for 6 month bills vs 5.23% in Nov. The Spanish 2 yr yield is falling to a 17 week low and the 10 yr is at a 10 week low. There is confidence in the new Rajoy govt’s will and ability to get thru tough reforms as it will certainly be easier than for the previous Socialist gov’t. Italy’s 2 yr yield is at a 7 week low. Germany’s Dec IFO business confidence # unexpectedly rose to 107.2 from 106.6 led by the expectations component. Also in Europe, the euro basis swap is narrowing to a 2 week low and Sweden cut interest rates by 25 bps as expected. The ECB did fully sterilize its 211b euros of purchases. In Asia, the Shanghai and Sensex indices continue to trade poorly but the Kospi bounced after yesterday’s Kim Jong Il induced selloff.
