As we noted this morning, the perfect 'reality-check' storm hit Europe this morning and with Draghi dismissing hope for more printing and nationalism raising its ugly specter, broad European equity markets made nearly their largest drop in five months. With the BE500 (Europe's S&P 500 equivalent) at three-month lows and Spain's IBEX within a few points of the March 2009 lows, things are becoming critical once again. Spanish yields jumped back over 6% but Italian spreads actually underperformed on the day +14bps vs Spain +12bps as Holland 5Y CDS blew past 130bps to near crisis-peak levels - leaving GDP-weighted European sovereign risk at three-month highs. The LTRO Stigma has broken above 150bps for the first time since before the LTRO as the realization of the implicit subordination of LTRO-encumbered banks is crushing unsecured bond-holders (on average trading at 350bps near four-month wides). EUR-USD basis swaps deteriorated a little remaining near their worst levels in three months but EURUSD remains miraculously just above 1.31 (though almost 100 pips off Friday's close) as repatriation flows are not helping correlation-driven algos in the US anymore.
European equity markets (blue) collapsed today back to Credit's reality and beyond as they broke to 3 month lows...
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The financials led the sell-off (light blue and red above) in credit but nowhere is this more evident than in the explosion of LTRO-encumbered bank spreads (red below) and the LTRO Stigma now at 155bps...
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And with Spain over 6%, Italy popping, and Holland breaking away from the other AAA names, European GDP-0weighted Sovereign risk shifts to three-month wides...
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and by the numbers, a sea of red in European equity markets...
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and IBEX near 2009's lows...
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Charts:Boomberg