Spanish sovereign bonds ended the week at all-time record wide spreads to bunds, pushing back up near 7% yields today before falling back into the close, and +55bps on the week. This is a 50bps underperformance of Italian sovereigns on the week, while Spanish stocks notably outperformed Italian stocks on the week (though faded notably today having been unable to regain Monday's opening highs). German Bunds also deteriorated notably relative to Treasuries on the week (the biggest wekly jump in Bunds-Treasuries in almost 7 months) and while equity and credit markets reconverged into the weekend - with position-squaring evident - as the shifts in Swiss rates suggest all is not well under the surface as repatriation flows drove EURUSD up over 115pips on the week to near its Sunday-night opening highs (amid a 200 pip range). Finally for all the ebullient US investors, we note that Europe's VIX was bid notably higher today to near a 3 week high relative to US VIX as hedges into the weekend were very prevalent.
It seems the end of the week in Europe - just like in the US - was about position-squaring as early-week protection (cheap macro overlays in MAIN - Europe's investment grade index) was sold back and stocks and credit resynced...
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with Spanish stocks (pink) rallying the most on the week (though fading today and unable to reachMonday's opening highs) and Italy underperforming (red).
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And clearly Spain (red) bonds diverged notably in the last two days from the rest of European sovereigns - especially Italy. Also note the green curve which reflects the almost 18bps decompression of German Bunds over Treasuries this week (as 10Y bunds rose 12bps while 10Y Treasuries are down around 6bps from Europe's close last Friday)...
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leaving Spanish 10Y spread to Bunds at an all-time record high...
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but Bund 10Y yields rose the most relative to 10Y TSYs in almost 7 months!
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as hedgers were active into this event-heavy weekend as Europe's VIX ramped relative to US VIX (for now)...
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Charts: Bloomberg