EURUSD Roundtrips To Unch As Bonds/Stocks Extend Gains

Tyler Durden's picture

After plunging 50 pips or so on the France downgrade news, EURUSD trickled back up to yesterday's highs just before the US open and is going out at the EU close unchanged from yesterday as French bond spreads are now 1bp tighter on the week (yes tighter). European stocks extended their gains on the day - playing catch up to yesterday afternoon's US equity ebullience but this time corporate and financial credit are not playing along with the exuberance (though sovereigns are better). The Israel ceasefire prompted some modest risk-off interestingly in stocks (though Shekel strengthened) as Oil plunged (Brent relatively underperformed WTI as they both fell).

 

EURUSD roundtrip...

 

Brent is relatively underperforming WTI for now...

 

Stocks gave a little back as oil dropped but in general played catch up to US strength yesterday afternoon...

 

and European sovereigns are rallying into the close (with Portugal over the moon -67bps this week!!)...

 

but corporate and financial credit is not playing along quite as exuberantly for now...

 

Just thinking out loud... the strength in Spanish bonds was odd into the close - especially considering the stability of CDS - and sure enough, it appears we have hit the 'arb' wall on the Spanish bond-CDS basis. As the chart below shows each time we have crossed the 130bps or so mark, hedgies have grabbed the bonds and overlaid protection to snap up the spread. With the 'naked' short rule now in place, this arb was less preferred BUT if correlation can be shown then it is 'allowed' and we suspect that's what supported bonds into the close...

 

Charts: Bloomberg