Out Fox The $treet

Evidently the 3 year funding program initiated by the ECB at the end of 2011 was more crucial to the bond markets than anybody originally thought. Spain issued twice as many 3 year bonds as planned at a yield significantly lower than last year. The 10 billion euros were priced at 3.38% compared to 5.18% when auctioned in December. Italy placed 12 billion euros and greatly reduced rates as well. So much for the funding concerns that Europe was suppose to face in 2012. The ECB liquidity measure has been a boon for at least bonds 3 year or less in duration. Now extending bond sells to 5 & 10 years might be an issue. For example, Italy still has a 10-year yield of 6.6%. This news makes me wonder how the Corzine trade at MF Global would've faired now considering the drop in rates. Those 1 year Italian notes would've paid handsomely at this point. Some more good auctions like this and the market will put Europe on the back burner and start focusing back on fundamentals....

Spain's Treasury had a very positive auction this morning leading to plunging rates for 3 & 6 month bonds. Though getting some play in the media, these auction results are being somewhat ignored. Not that the market has ignored them with the roughly 3% rise in US markets. Spain was able to sell a little over $7B in 3 & 6 month bonds at interest rates 300 bps below the previous auction in November. That is an incredible drop as follows: sold €3.7 billion in three-month bills at 1.735%, compared with 5.11% in November  sold €1.9 billion of six-month paper at 2.435%, compared with 5.227% last month.  What debt crisis? Or at least in the case of Spain. Maybe it will only be a short term phenomenon as this comes one day prior to the ECB launches new three-year lending facilities for the area's banks. Of course, Spain had another good auction a week or so ago when it sold more bonds than planned. Either way, it's a good sign that some of the European programs...