After a peaceful relaxing public disturbance or two during yesterday's May-Day holidays in Europe, the overnight data was disastrous and European risk markets responded in kind. Spain's IBEX traded below the March 2009 closing lows (though shy of the intraday lows) as it is almost back to levels not seen since Q3 2003 (with an intraday low today of 6776.5 versus 3/9/09's low of 6702.6) with its biggest drop in 2 weeks. Spanish and Italian bond yields (and spreads) pushed notably higher - back near last week's worst levels as the whole of the sovereign complex leaked wider today and financials, in their entirely consumed and joined-at-the-hip manner fell the most in 2 weeks - also near recent lows which would take EU bank stock values back beyond March 2009 levels to mid 1998 lows incredibly (where's Tilson when we need him?). It would appear some profit-taking in the LTRO-Stigma trade is occurring, rightfully so after a more than double, but non-LTRO banks outperformed today as LTRO-encumbered banks leaked back wider. European credit markets were open yesterday (since UK was not on vacation where the bulk of CDS market-making occurs) and we note that today saw investment grade credit (along with stocks) underperform (below Monday's close) - as we suspect 'cheap' hedges were grabbed while crossover credit and financials remain modestly tighter than Monday's close (even as their stocks are worse). Whether this is an up-in-capital-structure rotation on the back of hopes for new capital or merely a reflection of liquidity this week is unclear but it is worth watching as subordinated financial spreads are the outperformer off the 4/23 lows now.
Spain's IBEX index nearing 2003 levels...
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European bank stocks are even worse - nearing levels not seen since 1988...
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but subordinated financial spreads remain modest outperformers in the last week's rally as stocks and investment grade credit underperform...
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Charts: Bloomberg