Investors will be unable to shake off Italy-related concerns even as the holiday shopping season gets underway today with enticing Black Friday deals. Trading volumes will likely remain thin today, given the abbreviated trading session and the absence of any major economic reports. Don't forget, however, that low trading volumes have a way of exaggerating volatility.
In its latest bond auction, Italy was forced to pay Euro-era record high interest rates to attract investors. The country was able to sell €8 billion in six-month treasury bills, but only after paying an average yield of 6.5%, sharply up from the roughly 3.5% yield it paid for the same maturities in October. Yields on two and five-year Italian government bonds jumped to 7.7% and 7.8%, while the 10-year bond moved further above the 7% level to a new high of 7.3%. For context, keep in mind that Uncle Sam is paying less than 2% on 10-year bonds.
The inverted Italian curve -- higher yields on shorter duration bonds compared to long-term instruments -- highlights the market's anxiety about the country's near-term financial profile. Despite these extremely high funding costs, Italy is still able to access the bond market to roll over its maturing debt. But escalating yields are adding to an already precarious fiscal situation by increasing the country's debt-service liabilities. Thursday's statement by German Chancellor Angela Merkel strongly rejecting the demand for issuance of common Euro-zone bonds was the trigger for the renewed pressures on Italian bonds.
In corporate news, AT&T ( T ) announced that the company will be taking a $4 billion accounting charge in the fourth quarter to account for break-up fees if its pending acquisition of T-Mobile does not get regulatory muster. Focus will be on retailers like Wal-Mart ( WMT ), Macy's ( M ) and Best Buy ( BBY ) due to Black Friday-related headlines.
Approximately 34% of consumers are expected to shop on Black Friday, up from last year's 31%, according to the International Council of Shopping Centers. The total number of people shopping over the long weekend is expected to be up 10% from last year, estimates the National Retail Federation. It is too early to handicap the holiday shopping season, but given the improving economic backdrop, some early optimism may not be altogether misplaced.
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