by Calculated Risk on 12/28/2011 08:53:00 AM

From the NY Times: Italy's Borrowing Costs Drop Sharply at Auction

The sale of €9 billion, or $11.8 billion, of six-month Treasury bills was seen as the first post-holiday pointer to condition of the beleaguered euro zone.

The bills were sold at a yield of 3.251 percent, sharply down from 6.504 percent at a previous auction in late November. ... In an auction of two-year bonds, which raised €1.7 billion, the yield fell to 4.853 percent from 7.814 percent last month.

The Italian 2 year yield is down to 4.95% - the lowest level since October, but the 10 year yield is still at 6.86%.

The Spanish 2 year yield is down sharply to 3.26%, and the 10 year yield is down to 5.09%.

But the Italian economy is weak:

Italy suffered its biggest decline in Christmas retail sales in 10 years, according to data released this week by the consumer group Codacons, reflecting the impact of the souring economy.

It was a similar picture in Greece, headed for a fourth year of recession in 2012. The country’s near-record unemployment was reflected in a 30 percent drop in pre-Christmas sales, the ESEE retail federation said Tuesday.