Since Draghi's second savior LTRO, European markets have been flip-flopping gradually lower. These four charts do not seem to suggest a market that is confident about tail-risk containment, sovereign firewalls, or an orderly restructuring by Greece. Sovereign spreads are broadly higher (Spain, France, and Portugal the most), CDS spreads are underperforming (as protection is sought and CDS seen having value as a hedge), non-financial and financial credit is notably weaker, LTRO Stigma remains notably wide, stocks are broadly lower, and the EURUSD is back at 'fair' with its swap spreads (removing its over-pessimism). There has been no change in the price trends for UK-law versus Greek-law GGBs (i.e. noone believes this is over) and even if it were, a renewed focus on growth is hardly a market positive given lending trends and macro prints in Europe recently.
1. Sovereign bond spreads are leaking wider with Spain, France, and Portugal notably worse this last week...
2. CDS are underperforming at the same time, suggesting that i) market participants trust that CDS remain a valuable hedge (i.e. that Greece actions will not destroy this market), and that ii) CDS are a better gauge of sovereign risk as they are not as easily manipulated by the ECB SMP or LTRO carry (note Portugal and Italy are extremely 'cheap' in CDS relative to the bond side with high basis)...
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3. Credit and Equity Markets are ratcheting lower with credit markets tending to lead up and down. The flip-flopping personality is nowhere more evident than here...
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But 4. The EUR is back in line (having removed its over-pessimism) relative to its EUR-USD-implied swap spread fair-value suggesting no over-excited positivity at renewed growth prospects or on the other hand break-up risk any time soon (especially compared to the seeming over-pessimism we have seen recently)...
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Charts: Bloomberg