As traders hold their breaths for what will likely be a 'well-managed' French auction this morning, the sentiment from the late US markets is spilling into Europe as Sovereigns - especially France (record wides at 196bps), Italy, and Spain (record wides at 475bps) are all seeing yields and spreads surge. EFSF spread to Bunds just cracked 190bps for the first time as Italian 10Y spreads are back into the record-breaking zone from 11/9 and the Italian 2s10s curve is bear-flattening further by 13bps. ES managed to sustain a low volume recovery off spike lows after hours and is currently +0.5% (though leaking back) as European credit markets open leaking wider with XOver +13bps and Main +4bps. EUR remains under 1.3475 (and EUR-USD swap spread model is reverting back down towards EURUSD) as JPY strengthens modestly. Oil is diverging (higher - breaking $103!) from the rest of the commodity pack and is the main driver of a CONTEXT-based correlated-risk-basket rally (as TSYs drip back towards day low yields levels). Little sign of the ECB yet, but we suspect they are saving their fire-power for pre-auction shenanigans.
EFSF spreads broke 190bps for the first time - clearly signaling the market's perception of the AA/A as opposed to AAA/AA creditworthiness. French spreads traded wide of 196bps (record wides).
Italian spreads are breaking resistance and heading back to the lofty record wides of last week.
But CONTEXT remains modestly biased to risk-on for now as Oil holds on to its gains and TSYs are off their low yields (though ebbing).