European Stocks Slammed But Bonds Bid

Tyler Durden's picture

A very odd week in Europe. European stock indices dropped 2-3% on the week (though interestingly Italy rebounded quite aggressively off the lows today to end only -0.5%) with financials notably off mid-week highs. Swiss 2Y rates closed at their lows (under -3bps) - almost 3 month lows as safe-havens remain bid. Europe's VIX is notably higher this week. But away from equity weakness and safety flows, Bunds were sold and Italian and Spanish bonds were bought with both hands and feet (biggest 4-day rally in a month). We can only imagine that the devastation overnight in the JGB market combined with the biggest 2-day jump in EURJPY in 5 years has squeezed hedges and liquidations everywhere. Italian bond spreads are 30bps tighter this week!!! Spain -22bps, and Bunds have underperformed Treasuries by 9bps. The other explanation is of course that the Spanish pension fund just allocated the remaining 3% to peripheral bonds.


Spanish bonds flat to better while Spain stocks have been hammered...


and close up - something changed...


and even closer up - the EURJPY ramp coincided perfectly with the ramp in peripheral bonds...


Europe's VIX is 4 vols off the midweek lows...


but the disparity between bonds and stocks this week is very odd...


as EURJPY is up an amazing 5.6% in the last 2 days...


Perhaps that explains the move in peripheral bonds? the massive surge in FX carry - which typically ravages stocks higher - has seen that correlation implode and maybe, just maybe, the fast money carry traders are pushing bonds with that carry - we suspect that will not end well and 2 wrongs do not make a right!!


Charts: Bloomberg

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Cult_of_Reason's picture

"Sunshine" by The Five Locust Sisters, 1929 popular tunes before the crash (analogous to 2013 CNBC tunes)

Blue skies, smiling at me, nothing but blue skies, nothing but blue skies...

Oct 1, 1929 average P/E was 17.83

Apr 5, 2013 average P/E is 17.88

Irelevant's picture

Someone call Abe. We need QEin the EU.

Maybe Abe can print cheap high EROEI oil.

tarsubil's picture

They found a goose that lays golden eggs, poops oil, and sneezes iPads. We're saved!

Abraxas's picture

It's just one big casino, is all what it is.

Cult_of_Reason's picture

More like a manipulated Ponzi (requires an ever-increasing flow of money from new investors or the Fed to keep the scheme going) than a casino.

Groundhog Day's picture

They should learn to BTFD like in the US.  The markets will be up by the end of the day.

HedgeAccordingly's picture

DA' bonds are pricing in something beyond shitty jobs #

malikai's picture

I told you all yesterday about the action in EURJPY/USDJPY. And it was just one of many outliers.

Yen Cross's picture

    Check this chart out. [IMG][/IMG]
   Thats 883 pips in aprox. 36 hours.

malikai's picture

GBPJPY is always a heartbreaker for me. The spreads are too wide. But yesterday was amazing and now it's fully inverted.

Yen Cross's picture

    Thanks for the chart. keep an eye on cable. That is the key to opening/closing that divergent gap. ;-)


Raven of milan's picture

Maybe italian government(which one the old moribund one or the not existent one?)need some boost of local markets before monte paschi take over?

Golden_Rule's picture

This is what happens when you tell bondholders that depositors will be ransacked first.  As far as the oligarch are concerned, problem solved.

They_Live's picture



Banker 1: Do not try and fix the economy. That's impossible. Instead... only try to realize the truth. 

Banker 2: What truth? 

Banker 1: There is no economy. 

adr's picture

What the fuck is going on with Natural Gas futures????

Nobody seems to know but the price went parabolic on the daily chart.

FranSix's picture

What was the reason for the failure of Cypriot banks again?

Monedas's picture

Tyler, you just got a nice plug from Rush !  

Modus's picture

it is japanese investors buying european assets! just look at french govt bonds which are the safest and most liquid after german bunds. huge volume in cash and futures markets today (check out the new 10y oat future trading on eurex). not obvious when BOJ soon starts printing 80bn USD per month? then close this blog because u dont know shit


btw, most of u dont know shit. sorry but thats some truth

thismarketisrigged's picture

and sure enough, despite a fucking horrendous jobs report, a 30 year low in labor participation, our markets r down way off there lows, and not even down 1 percent.


its such a fucking crime, i dont know what to say anymore.

Day_Of_The_Tentacle's picture

EUR up. Bunds Down. Spain bonds Up. Spain Stocks a bit up. Italian bonds up. Italian Stocks up. French bonds up. All set off at 9:00 o'clock this morning.

Another ZH poster noted that Monti had called government people for a meeting this weekend. Are they forming a new government, or are they preparing something else?

Investors appear to be confident that the big nations of the Med will be able to pay back and that a flight to Bund safety despite all sorts of going ons is not necessary. An that confidence appeared all of a sudden at 9:00 o'clock this morning.

Are we in for an interesting weekend, I wonder?