European Bloodbath As Merkel Won't Go Dutch

Tyler Durden's picture

Equity, credit, and sovereigns all ugly. Merkel's unequivocal comment on her nation's unwillingness to 'share' burdens and slap the proverbial cheek of Monsieur Hollande, Italy's banking union looking for more 'aid', Spain actually asking for their bailout, Greece 'avoiding' reality, and Cyprus pulling the 'China rescue plan' last ditch retort to market angst; but apart from that, things are dismal in Europe. Italy down over 4% and Spain almost as bad on the day as every major equity index is well into the red. Italian banks monkey-hammered down 6/7.5% and halted a number of times. Investment grade credit outperformed (though was notably wider) as financials (subs and seniors), XOver, and stocks are plummeted to 11-day lows. After breaking below the pre-Spanish bailout levels on Friday, Spain and Italy 10Y are now 20-40bps wider with Italy and Spain 5Y CDS notably wider and well over 500bps. Notably the short-end of the Italian and Spanish curves underperformed significantly (curves flattened): 2Y BTPs +57bps vs 10Y +21bps - biggest flattening in 6 months!; 2Y SPG +37bps vs 10Y +17bps. Europe's VIX snapped back above 27% (and we note that our EU-US Vol compression trade is moving well in our favor). EURUSD has been smacked lower by over 80pips ending under 1.25 once again.

Stocks and credit down hard led by financials...

and Italian banks leading the dump today...

and Italian 2s10s plunged (flattened) by the most in over 6 months today...

we can only imagine what this is doing to LTRO-bound Italian banks that took up Sarkozy's idiotic symbiotic carry trade. (as 2Y ITA shows below post LTRO)


Charts: Bloomberg