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Ahead of Wall Street

Wednesday, December 28, 2011

With nothing major on the domestic economic calendar today, stocks will likely get a lift from the sharp drop in Italian government bond yields. But trading volumes are expected to remain light due to seasonal factors.

Italy sold €9 billion of 6-month treasury bills at a 3.25% yield, roughly half of what the country had to pay for the same maturity in last month's auction. Demand was also a lot more stronger than a month ago. Yields on Italian government bonds have come down in the secondary market following the successful auction, though not as dramatically. This was the first major bond auction since last week’s major liquidity operation by the European Central Bank.

The improved liquidity position of Euro-zone banks as a result of the ECB action was expected to encourage them to operate more actively in the government bond auction. Today’s successful Italian bond auction appears to bear those expectations out. It will be interesting to see if this improving trend will remain in place in another bond auction scheduled for Thursday.

In corporate news, Cavium (CAVM - Snapshot Report), the semiconductor maker, lowered its revenue outlook for the current quarter due to weak demand from its customers. Emcore Corp. (EMKR - Snapshot Report), another semiconductor manufacturer, came out with weaker than expected results on Tuesday and guided lower. The New York Times Company (NYT - Analyst Report) announced the sale of its regional media business that includes 16 local newspapers and other assets for $143 million. The media company expects to record an after-tax gain on the transaction in the first quarter of 2012.

Sheraz Mian
Director of Research

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