Market Analysis

Bonds are flat with a slight negative bias today despite weaker than expected December Retail Sales and higher than expected Initial Jobless Claims.  Typically one would expect bonds to improve on weaker economic news.  Bond investors are responding to better than expected auctions in Spain and Italy where yields fell 1% on Spanish bonds and fell from 5.95% to 2.735% for Italy's 8.5 billion Euro 1 yr note auction.  Better yields on European debt signal a lessening of the "fear" trade that has driven funds into US Treasuries. 

In economic news, Dec US Retails Sales came in up .1% vs expectations for a .4% increase.  Exluding the automotive component of the report though, Retail Sales ex-auto were down .2% vs expectations for a .3% increase.  Separately, Initial Jobless Claims for the week ended 1/7/12 came in at 399,000 vs expectations for a 375,000 figure.