Sovereigns At One-Month Tights Ahead Of Capital-Raise-Plan and Debt-Swap Deadline
The rolling euphoria continues. European sovereigns have performed well again today with a significant surge into the close (helped earlier by ECB buying and optically successful auctions). Italian 10Y is trading back at 450bps over Bunds (one-month tights) and European banks ripped higher in equity and credit markets (as belief in capital raising plans takes hold). As we noted earlier, GGBs have been underperforming all week but equities and credit seem unstoppable here. USDJPY has crumbled in the last hour or so (around the same time as sovereign spreads started to accelerate their compression) and Treasuries (and Bunds) are very significantly underperforming (with the former now 13bps higher in 30Y for the week). While the dollar continues to weaken (and EUR strengthen back over 1.29) commodities are 'oddly' rolling over with Copper, Oil, Gold, and Silver all well off their earlier highs as Europe closes.
Stocks and credit are moving from the lower left to the upper right...enough said. The compression in subordinated financial credit is perhaps the most impressive but we remind those momentum chasers that liquidity does not fix solvency and these are 5Y maturity deals (i.e. post the LTRO roll date).
European sovereign spreads (Portugal not shown but compressed today on ECB buying) have been a little mixed on the week - very different to the financials and broad credit markets. BTPs of course have outperformed - now at one-month tights - (and as pivot security perhaps the risk rally makes sense) but between EFSF and Belgium, spreads are within 5-10bps of their close last week.
EURUSD continues to squeeze against the 'Stolper' trade, now back above 1.29 and at two-week highs. But broadly, the majors are stronger against the USD (except the notable exception in JPY which is much more volatile than its recent historical moves would imply).