European Stocks Soar (And So Do Peripheral Bond Yields!)

Tyler Durden's picture

It's another one of those hope-fueled days in Europe as European stock indices across evey nation close comfortably in the green as the EU Summit begins. Germany has taken all the substantive things off the table and Cyprus and Portugal threw in the towel but nevertheless, stocks are 1-2.5% higher (with Italy and Spain outperforming). We assume this is reflexive pricing of 'the crisis is now so scary that the ECB will have to do something' but it seems the FX and Sovereign bond market missed that pre-emptive hope-driven view as Portugal yields/spreads spiked, Spain pushed back up to 6.93% and saw further flattening in its yield curve (as short-dated LTRO-enthused bonds underperform dramatically) as 2s10s is almost back to six-month pre-LTRO levels. Italian spreads pulled off their worst levels to close mixed but remains over 40bps wider on the week. EURUSD closed down over 35 pips at 1.2450 and stocks were in a world of their own also relative to credit markets today.

Equities remain well down in the last week or so but bounced into the close today...

but Sovereigns remain extremely weak...

as Spain's 2s10s yield curve flattens to six-month pre-LTRO1 levels - leaving all those LTRO 'Sarkozy' trades underwater...

and stocks appear to be in a world of their own compared to credit markets once again...

 

Charts: Bloomberg