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LTRO Stigma Surges As PSI Concern 'Stuns' Europe
European financials are under significant pressure today and that is dragging down the rest of the broad markets. The selling appears to be driven by three main factors: 1) the LTRO Stigma has surged back to record wides (after a brief lull into LTRO2); 2) rather amazingly investors are starting to get concerned that the Greek PSI deal may not happen; and 3) weak macro data. Obviously both are no surprise to readers and the canaries have been fluttering for a few weeks on this. Equity markets continue to hold onto hope as they remain broad outperformers but in a different tone than the last credit-led sell-off, European equities are dropping much more in sync today. Sovereign spreads and yields are leaking higher with Spain and Italy underperforming (followed closely by France) as perhaps all the self-serving Italian and Spanish carry-trade-funding banks have run out of ammo (or will to extend) as the Greek basis package inches ever closer to Par (implying absolute inevitability of an imminent credit event). Notably Sov CDS are underperforming (as we pointed out last week they are potentially a less manipulated and cleaner indication of risk appetite than bonds for now). It would appear that all the belief that insolvency tail risk and contagion had been deferred or ring-fenced by yet another liquidity flush may have simply forced European banks into an Oliver-Twist-style environment - "May we have some more?" as we now start top hear the mutually assured destruction chatter surrounding the implications of a failed PSI deal - where have these people been for the last 3 months?
The Stigma spread between LTRO-laden banks and non-LTRO-laden banks has surged to near record levels once again...
and overall credit markets are once again signaling concerns though this time, equities are following them down (though less aggressively at the aggregate for now)...
and while credit broadly remains the underperformer (with senior financials - red - the newly subordinated laggard), stocks (blue) are starting to follow in a much higher beta way this time...
and while sovereign bond spreads (and yields) are pushing higher for the second day in a row (notable in itself), it is the CDS market that is widening more (as the basis widens) and we remind readers of our discussion last week that watching Italian and Spanish CDS is perhaps a cleaner way of gauging reality than their ECB/LTRO-carry-funded bond curve self-dealing...
All-in-all, not a pretty picture as EURUSD pushes lower, Treasuries are rallying and commodities are tumbling.
Charts: Bloomberg
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Buy the VIX and bet on the spread collapsing.
Got Silver?
I would if it wasn't for that fishing accident. might go back and look for it once I get dive certified.
Pardon me while I put on my stunned face.
If they're gonna subsidize the metals.....I'm gonna buy.
I broke that face a long time ago. We keep seeing a familiar pattern between equities and credit. The banks, wall street, the fed, and a few other insders have been keeping things in the "market" afloat by spinning shit between themselves (what is the average time a stock is held now?) and adding capital for no cost (ZIRP). The market goes up and the institutional and 401k fund managers are forced to come back to the table (or get fired) to get fleeced right before the spread collapses, again.
Amazing. At this point I greatly appreciate tyler's efforts to point this all out. Eventually, I think the banks will win again, so collect physical assets when you can and sleep well. No need to be stunned by the rise of greed and decadence again, human nature. Just hedge accordingly.
My trigger finger is getting real itchy. This might be like early 2009. Last time you'll see these prices.
Those cunning runts!
Shelf life of 'cosmic, anti-Apocalyptic, historic fiscal deals' now....less than a week.
How ready are you?
It does feel like that, doesn't it?
Me, I'm heading off to the desert this week. Flowers in bloom. No news, no Internet, just sun and stars, a jug of wine, steak, mesquite campfire, and a tent and a bag.
I wonder if they'll be rolling up the sidewalks and selling the streetlights by the time I get back.
A jug of wine? Last time we camped in Death Valley I was trading silver, trying to get some quotes at minue 200 feet elevation and a "jug" wouldn't make it through breakfast....
You guys are once again forgetting the Great Lesson of 2011.
Governments will do ANYTHING to keep the juggled balls in the air.
They will write a 14 billion euro check on March 20 as a "temporary measure to buy time to deal with the problem". They will do this regardless of . . . anything.
Then they will embark on the necessary steps to find the individual holdouts and threaten them with whatever it takes, up to and including murder. Anything means ANYTHING.
Do not look for situations that are visible and addressable to be the push over the cliff. The push will be something not humanly controllable, or invisible altogether. This is neither. When they have said they will "force" participation, do not think that means only legal action.
Only if the holdouts concealed the owners of the bonds can this be the push. Only if it's impossible for a bullet to find the skull targetted can this be the push.
as my wife likes to say, "Hope is the last thing to die..."
Sorry...hope isn't the last thing to die. My hope has died but my distrust, dispair, and cynicism are all pretty healthy at the moment.
And when it dies, it turns into fear. Hope and fear drive the market. Is fear returning like it did last summer?
None of this matters till it does....And now it matters.
HALARIOUS. One day down triple digits on the Dow and CNBC is flashing "More easing to come by April"...
Remain calm.....all is well.
http://www.youtube.com/watch?v=zDAmPIq29ro
Almost all of the newly printed LTRO 1+2 money has made it back to the ECB balance sheet where it’s netting the banks negative .75% interest.
I suppose that money could be used for bank balance sheet repair (and is arguably reducing some systemic risk) but its not exactly working its way into the broader economy.
Although, for now at least, I guess its not being used to facilitate backdoor debt monetization either.
Are the players involved trying to mimic what happened in the US in the wake of QE 1+2 or does it just look like its working out that way?
P.I.I.G.S.: Periphery is indeed growing steadily
europe DOWN... & some greek banks +20%
http://www.bloomberg.com/quote/ALPHA:GA
time has come,
farewell
new to ZH here..just a couple months. I am amazed by the amount of info provided here for free! What an education. "Tyler(s)" I SALUTE YOU!
altho coffee is not too perky this morning, the overblown Dax is gettin waxed
it would not surprize me to see the PMs catch a bid in here along with Ts and USD [79.76 +.46], but with that $ ^upskie^, PMs priced in $s tend to suffer a bit
IIF says it will cost 1 T if the PSI does not occur. If we have Iran war and Banking meltdown at same time; oil prices will soar when our economies in first world won't be able to react.
Its time to see who runs this world, the debtor countries or the creditor countries. BRICs or BRUNT.
Good post. Could you tell me where you get the list of LTRO and non-LTRO banks? I'd really like to be able to replicate the first graph of your post in Bloomberg. Thanks in advance,.