European Credit Refuses To Take The Blue Pill
After an almost incessant rally off Thanksgiving Day lows, European financials are seeing a quite notable divergence in their performance over the last two days. Dispersion has risen across all of credit with financial credit spreads widening significantly as both broad stocks and specifically the European financial stocks trade sideways to higher. This is the most significant divergence between credit and equity for the financials in Europe since that rally began and was then extended via LTRO hopes. Perhaps the reality of implicit LTRO subordination as increasing amounts of collateral (backing the entire capital structure of the banks) is being priced into the much more sensitive and quick to react credit markets as stocks just can't shake the momentum extravaganza.