What Does European Credit Know That Stocks Don't?
European credit markets are near one-week wides, having tumbled dramatically since yesterday's open. Investment grade credit is leading the charge followed by senior financials as professional investors look for macro protection - we suspect ahead of this weekend's election. However, European equities are modestly higher from yesterday's close and remain higher than Friday's close. Credit markets had their own dead-cat-bounce at the open this morning but that has since faded significantly, so for now, as we have said again and again 'credit anticipates and equity confirms', it seems credit is seeing something a little less sanguine ahead for now. In the meantime, Spanish and Italian sovereign debt is pushing higher in yield (Spain +74bps from yesterday's open to euro-era record highs) and Swiss 2Y rates have hit a new record low at -36.6bps.
European equities (dark blue) in a world of its own compared to credit as investmnet grade credit (impacted by financials obviously) are at one week wides.
and European sovereign spreads are all bleeding with Spain (and Italy) now over 70bps wider than their open yesterday...