Since we first suggested in early February [3] that investors should be underweight LTRO-encumbered banks relative to un-encumbered banks, and summarily dismissed Mario Draghi's lies with regard any stigma associated with LTRO loans, the spread has increased from around 50bps to almost 140bps today. The move today has taken LTRO Stigma (the spread between banks that took LTRO loans and those that did not) to the widest it has been since the announcement of the LTRO program. So while financial spreads in absolute terms are not back to their very early January widest levels quite yet - the differentiation between the encumbered and unencumbered is gaping wide. Perhaps this helps to explain why a further indicator of funding stress - the 3Y EUR-USD basis swap - is deteriorating rapidly (at a similar velocity as was seen heading into the crisis epicenter last year) meaning European banks are increasingly willing to pay a higher premium for USD funding - not a sign of a healthy market in any way.
The LTRO Stigma (lower pane) has reached levels not seen since the initial announcement of the LTRO program as banks that face the ECB's implicit encumbrance notably underperform those that chose not to dance with the devil.
[4]
And the rapid deterioration in the 3Y EUR-USD basis swap is worrisome as it indicates European banks are increasingly willing to pay a premium to access USD funding (obviously post LTRO in this case).
[5]
Charts: Bloomberg