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LTRO Bank Stigma Widest Since LTRO Announcement
Since we first suggested in early February that investors should be underweight LTRO-encumbered banks relative to un-encumbered banks, and summarily dismissed Mario Draghi's lies with regard any stigma associated with LTRO loans, the spread has increased from around 50bps to almost 140bps today. The move today has taken LTRO Stigma (the spread between banks that took LTRO loans and those that did not) to the widest it has been since the announcement of the LTRO program. So while financial spreads in absolute terms are not back to their very early January widest levels quite yet - the differentiation between the encumbered and unencumbered is gaping wide. Perhaps this helps to explain why a further indicator of funding stress - the 3Y EUR-USD basis swap - is deteriorating rapidly (at a similar velocity as was seen heading into the crisis epicenter last year) meaning European banks are increasingly willing to pay a higher premium for USD funding - not a sign of a healthy market in any way.
The LTRO Stigma (lower pane) has reached levels not seen since the initial announcement of the LTRO program as banks that face the ECB's implicit encumbrance notably underperform those that chose not to dance with the devil.
And the rapid deterioration in the 3Y EUR-USD basis swap is worrisome as it indicates European banks are increasingly willing to pay a premium to access USD funding (obviously post LTRO in this case).
Charts: Bloomberg
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Where can i buy "NO STIGMA" t-shirt?
Scarface
Perhaps there are those in the market who know that a big bang is very very close for the LTRO Banks?
Anyone remebering Chris Rea's "The Road To Hell"?
And all the roads jam up with credit
And there’s nothing you can do
It’s all just bits of paper flying away from you
Oh look out world, take a good look
What comes down here
You must learn this lesson fast and learn it well
This ain’t no upwardly mobile freeway
Oh no, this is the road
Said this is the road
This is the road to hell
Sorry to divert but anyone have any idea whats up with silver wheaton today?
Maybe Peter North could plug that gap and provide truly deep penetrating liquidity?
Just keep talking dirty to me boyo...
EURUSD BS has some ways to go... Lots of people watching it in FX and repo land.
Why?
It's the biggest mirage inside 'markets'.
Alpha
Stigma
Beta
Market Kappa
The Alpha and OMG! of quantitiative finance?
Easy fix. Announce another LTRO program.
Spain is floundering. Lagarde, Bernanke, Stupor Mario all believe that FURTHER liquidity is the answer.
http://confoundedinterest.wordpress.com/2012/04/16/spanish-sovereign-10-...
Lagarde just needs her bag filled, preferably by US taxpayers, and all will be well.