The good news out of Europe is that despite the long-overdue downgrade 4 countries plus the EFSF issued debt successfully, namely the EFSF as well as Spain, Belgium, Greece And Hungary. The bad news is that all of the debt issued was Bills, which at least for now is not an issue when it comes to market access as the market believes that LTRO cash will cover anything with a sub-3 year maturity courtesy of the LTRO, even if in reality nobody is using the LTRO for debt roll purposes and all auctions are net cash withdrawing from the system. In brief: the EFSF sold €1.5 billion in 6 month bills at a 0.2664% yield and 3.10 BTC; Spain issued €4.9 billion out of a €5 targeted in 12 and 18 month bills, which priced better than the last such auction from December 13, at mixed Bids to Cover; Belgium raised €1.76 billion in 3 month bills at a higher yield or 0.429% compared to 0.264% before and in line BTC as well as €1.2 billion in 12 month Bills at a 1.162% yield compared to 2.167% and a lower BTC; Greece bill yields fell at a 3 month bill auction to 4.64% vs 4.68% before, selling €1.625 bn with €1.25b in competitive auction, meeting maximum competitive auction target of EU1.25b and so on. The picture is simple: when it comes to funding itself, Europe is great at ultra-short term debt, and not so good at anything longer. Regardless, Europe will spin this as a great success considering the S&P downgrade over the weekend. We'll wait to see how bond auctions longer than 5 years will fare, if of course any non-Bill auctions are conducted in Europe in the future. Some other good news came from the German Jan. ZEW confidence index which came at 28.4 vs est. 24.0. The result is that the expected EURUSD short covering has kicked in, and the pair is flirting with 1.28, as we get recoupling between asset classes. Bottom line: ultra short term debt and a rise in confidence is sufficient to push futures up by about 11 ES points. In the meantime, as the chart below shows, we get another record high parking of cash by European banks with the ECB at €502 billion, as the European superstorm - the failure of Greek restructuring talks - is about to hit, and banks have to prepare for the unknowable. Also, today we will likely see S&P begin downgrading hundreds of European banks and insurance companies. But that to is surely largely priced in.