While every investor you ask is vehemently concerned about any and every risk and sentiment surveys suggest there is a 'wall of worry' to climb, once again the truth is in the positioning. Based on DTCC data, via Morgan Stanley, investors' net bullish CDS positioning in European investment grade credit has never been higher - having surged recently. Critically, note that that investment grade credit index has a major exposure to European financials. Adding to the reality of positioning and self-deceiving biases of all those so afraid to miss the CB rally or look like fools in the face of momentum, bond markets are even more ebullient (as European bond spreads trade back under CDS spreads) and European credit implied volatility trades below realized vol - an even more unusual occurrence than in VIX currently. It seems the real pain trade is a risk flare in European financials once again - as opposed to all those who 'hear' everyone's bearish.
European Investment Grade Credit CDS positioning has never been more bullish...
[8]
and at the same time, bonds are trading even richer (lower in spread than CDS)...
[9]
and implied volatility has dropped below realized volatility in a show of confidence/complacency/bullishness...
[10]
Charts: Morgan Stanley