There has been a lot of bluster this week that tail-risks have been removed from Europe (thanks to The Dreme) and now ESM ratification can continue to hold up Europe's insolvent states. Europe's equity markets continue to lift (though slower and slower), Europe's VIX has fallen again (post ESM decision), Europe's credit spreads continue to compress and squeeze tighter, and sovereign bonds rally - at the short-end. The one fly in the ointment - is that the last three days have seen very little movement in Bond yields for Spain, Italy, and France - only Germany's 10bps yield decompression has been the driver of perceived risk changes for the periphery. EURUSD is now 1 sigma rich to its swap-spread fair-value model - which is unusual. It seemes -just as in the US MBS market - the rumor has been bought, as stocks in Europe also leaked lower from the ESM announcement time spike.
EURUSD has become a little exuberant- as is clear (lower pane) it has seldom traded more than 1 sigma rich to its swap-spread fair-value...
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and Sovereign yields have stagnated this week...
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and European stocks leaked lower post the ESM decision...
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Charts: Bloomberg