As we have discussed extensively, and noted this morning specifically [7], the LTRO is stigmatizing credit markets in Europe, no matter what European leaders or bank CEOs tell you. European credit and equity markets dropped dramatically post LTRO 2 and accelerated on Bernanke's lack of monetary exuberance. Financials underperformed but most notably, subordinated credit spreads widened significantly more than seniors holding at yesterday's wide levels. The Stigma trade is occurring in single-name credit also with the spread between LTRO and non-LTRO banks widening once again after compressing for a few days but it is the Senior-Sub spread decompression that is the liquid trade for European bank's implicit subordination for now (as the entire capital structure of LTRO banks just became subordinated at best and more levered and subordinated at worst). The EUR tumbled over 100pips towards 1.3350 as the USD rallied back to the week's highs. Silver (and Gold) crashed into the European close (down over 7% on the day at one point) while Treasuries sold off and European sovereigns leaked wider (except Portugal which crashed and Italy which compressed modestly). Quite a day.
Credit markets (and stocks) fell notably post LTRO with financials leading the fall...
[8]
The Stigma trade was focused in the spread between Senior and Subordinated credit spreads and rose significantly today...
[9]
EURUSD fell to the week's lows and DXY rose to the week's highs as USD strength dominated all the flow (except CAD).
[10]
Charts: Bloomberg