European Bloodbath Continues

Europe was a sea of red (apart from Bund prices) today. With yesterday's window-dressing done and overnight dismissal of Spain's hopeful ECB-workaround, European equity and credit markets were dismal, EURUSD ended under 1.2400, and 2Y Bunds at 0.00% yield. Financials underperformed in stocks and credit with senior bank spreads back up to 300bps and LTRO Stigma jumping 12bps to 177.5bps (near record wides). Spain and Italy dominated both single-name banking and non-banking credit and equity moves as well as sovereigns with Spanish 10Y now +45bps on the week and Italy +37bps (with Belgium, France, and Austria all around 9bps wider). All European equity indices are down for the week with Spain down almost 8%. EUR-USD 3Y basis swaps turned back lower (worse) back to -70bps - not a good sign for funding (especially in light of the drop in LTRO we noted yesterday). On a final note of despair, Spanish 2s10s is now flatter than at any time since LTRO1 - implying that any LTRO debt used to fund a real carry trade is now a loser.

European sovereigns dismal...

and while European stocks (blue) have retraced most of the recent hope-driven rally, Crossover credit (black) remains rich as its high beta dispersion (green oval) has not fallen back to earth. Note also the financials (red and light blue) underperforming...

All European equity indices are down for the week with Spain's IBEX unsurprisingly the biggest loser down almost 8% (and the Swiss best at just under unch)...

and Spanish 2s10s curve is now flatter than any time post LTRO1 - so any of that LTRO debt used to fund a real carry-trade (as opposed to the losses on direct sovereign purchases) are now underwater...

 

Charts: Bloomberg