Europe Squeezes Back To Wednesday's Reality

Quite a shocker of a day in FX and European corporate bond and stock markets as shorts are squeezed back up to last Wednesday's levels. Sovereign bonds - which one would think the beneficiary of all the exuberance are flat as a Gaza-strip apartment building: +/-2bps in the last 4 days (aside from Portugal which rallied over 30bps today). The following four charts gives a sense of the anxiety both ways in this market with the low volume this week likely to help all those hoping for a final solution. Credit markets gapped tighter and kept going (one of the biggest moves of the year with XOver -35bps) with financials outperforming (more life-lines for the over-levered?); equity markets all retraced last week's losses in large part (aside from Greece); EURUSD broke back above 1.28 and its 200DMA; and Europe's VIX has collapsed from over 22% to 19.6% at the close today.


European Sovereign bonds unimpressed...(apart from Portugal)


European Stocks reverted back...


and corporate and financial credit soars/squeezes back to Wednesday's levels...with financials outperforming


As EURUSD rallied to two-week highs...


and Europe's VIX cliff dives...


Moves feel very squeeze-like wherever we look - not sustainable - and in general equities have considerably outperformed broad risk assets.

Charts: Bloomberg


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