It was the best of times, it was the worst of times. That just about sums up the divergence of opinion among credit (bad) and equity (good) traders had as the week ended on a very sour note for bonds. Financials, which have seen nothing but compression and exuberance, have swung notably wider in the last 36 hours or so - as the spectre of the repayment of LTRO begins to show forth. Meanwhile, stocks are flatly ignoring that reality and close (broadly) at the highs of the week. Sovereigns in general trod water (+/-5bps) except for Spain which rallied 21bps (of course it did, the awesome bad loans data must have been the bad-is-good driver?). EURUSD also started to sag today back to its lows of the week - even as Swiss 2Y rates broke back above 0% for the first time in 9 months.
European credit (most notably financials) underperformed...
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European Sovereigns were flat aside from Spain...
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EURUSD weaker...
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Swiss 2Y Rates positive for first time in 9 months...
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Meanwhile LTRO Stigma (the spread between LTRO encumbered and non-encumbered bank credit) remains near its medium-term lows and while paybacks will theoretically reduce the encumbrance, we suspect the reduction in fungible capital will have a more negative impact and widen the LTRO spread...
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Charts: Bloomberg