TBT ProShares UltraShort Lehman 20 plus Year Treasury

The market will have plenty to digest in today’s session, with a host of U.S. economic reports keeping it occupied. The weak Jobless Claims report reverses some of the positive gains of the last few weeks, but the overall trend on the initial claims front still remains favorable.

Beyond the U.S. shores, we also have another successful-looking bond auction in Italy, further bringing down the country’s borrowing costs. Other domestic economic reports on deck for a little later release include the Chicago PMI report and Pending Home Sales.

This morning’s Jobless Claims data came in weaker than expected, with initial claims increasing 15K to 381K. The prior-week’s tally was increased by 2K to 366K. The four-week average dropped by 5.7K to 375K, the lowest level since June 2008. The bigger than expected jump in Initial Jobless Claims numbers today is a bit disconcerting, but the overall trend in this key series still remains favorable.

As long as the four-week number keeps trending down, we can look forward to favorable developments in the labor market. Given the drop in claims numbers over the last few weeks, it will be reasonable to expect a strong reading in next Friday’s December non-farm payroll report.

Italy’s funding costs maintained their downtrend in another bond auction, though today’s auction of longer maturity bonds was less successful relative to the sale on Wednesday when yields on six-month instruments roughly halved from the preceding auction’s level. While yields in the secondary market were generally lower following the auction, the currency market was less appreciative of the bond sale, with Euro losing ground against all the major currencies, including the U.S. dollar.

The country was able to sell €7.02 billion in bonds, with yields on both maturities coming down from the level of the last auction a month back. The 3-year portion of the auction was completed at an average yield of 5.62%, down from 7.89% in the last auction on November 29th. The country paid an average yield of 6.98% on the 10-year bonds, down from 7.56% previously.

Today’s bond auction follows the successful 6-month auction on Wednesday. A combination of tough austerity measures by the interim government of prime minister Mario Monti and last week’s liquidity enhancing action by the European Central Bank appear to be helping ease anxieties to some extent about Italy’s fiscal picture. But then again, it could as easily be a function of light holiday season volumes.

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