European Equity And Credit Diverging As Sovereigns Implode
European sovereign credit curves are bear flattening (inverting wider) in almost all cases as short-dated yields breaks to new records in several names. At the same time, European credit is breaking to new lows in Corporates and financials with Subordinated financials underperforming. Somewhat strangely - though not exactly surprising given the market's behavior in the last few weeks - European equities are holding up as they ignore the reality priced into credit. It seems equities see the light at the end of the tunnel, but credit knows its an oncoming train. US markets are in sync with the broad risk-asset basket (CONTEXT) for now but correlations are tending to be much lower than on average so far.
Total dislocation in credit vs equity this morning. Of course the safer trade is convergence (long credit, short stocks) but the breadth of weakness in credit suggests some confidence in a negative bias.
As Sovereign curves are once again deteriorating as EURUSD surged down toward 1.32 but stalled early and is pulling back to 1.3250 now. Oil, Gold, and Silver are still selling off but Gold less so at the moment.