As Europe opens, S&P 500 e-mini futures (ES) have given up all gains for
the day and are back below yesterday's day session lows (down 9pts from the
close). German and Dutch 2Y interest rates just hit record lows at
-0.021% and 0.033% respectively (and Swiss 2Y is back at -35bps just
off its lowest ever). Major AUD weakness following its worst of the year drop in
employment is impacting carry pairs (notable JPY strength) and the EURUSD is
back at yesterday's lows - which is pushing the USD up to week's highs and
dragging commodities lower (with Silver and WTI dropping the most). Treasury
yields are leaking lower but remain well off post-10Y-auction spike lows for
now. Meanwhile - Italian and Spanish sovereign bond spreads are modestly
lower. This seems like a combination of technicals from CDS-cash basis
traders stepping in at notably wide spreads as well as the considerable
decompression in subordinated bank spreads relative to senior/sovereigns - which
is/was a popular trade and seems to have gathered steam once again as the
Spanish MOU is leaked (and as we suggested Subs get 'bailed-in').
European credit remains markedly underperforming European stocks post
EU-Summit, but the stocks seem to be playing catch-down for now
today.
Subordinated bank spreads in Italy and Spain are decompressing rapidly...
while sovereigns are maintaining the modest strength (especially odd in context to EUR weakness) but remain wide still of post EU Summit opening levels (with Portugal deteriorating rapidly)...
though by the 'cheapness' of Spanish bonds relative to CDS (the light blue 'basis' line), we would suspect this is just RV flow and not renewed real money buying - which helps explain Italy's outperformance in the last week or so - since the basis compressed so much (black)...
and financials - expectedly so - are leading the weakness - but credit overall is considerably weaker than stocks (dark blue) seems to believe they should be...
But S&P 500 futures have lost all of the afternoon's post-FOMC plunge rampfest gains...
Charts: Bloomberg
Subordinated bank spreads in Italy and Spain are decompressing rapidly...
while sovereigns are maintaining the modest strength (especially odd in context to EUR weakness) but remain wide still of post EU Summit opening levels (with Portugal deteriorating rapidly)...
though by the 'cheapness' of Spanish bonds relative to CDS (the light blue 'basis' line), we would suspect this is just RV flow and not renewed real money buying - which helps explain Italy's outperformance in the last week or so - since the basis compressed so much (black)...
and financials - expectedly so - are leading the weakness - but credit overall is considerably weaker than stocks (dark blue) seems to believe they should be...
But S&P 500 futures have lost all of the afternoon's post-FOMC plunge rampfest gains...
Charts: Bloomberg
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