Hungarian Rescue Talks Fail

Something is decidedly strange in Europe today: while there has been a favorable shift in bond spreads with the 10 year BTP dropping to 6.4% (although still waiting for LCH to react to its margin cut even as spreads are 100 bps wider) it is the 3M EUR/USD cross currency basis swap that has us confused as it has mysteriously moved violently tighter, from -140 bps to -121 bps overnight, indicating someone may know something in advance of yet another central bank liquidity infusion. As for the catalyst why one may be needed, we go to Hungary where we learn that "rescue" talks with the IMF and EU "on securing some form of backing to reassure investors" have broken down. As a reminder, should Hungary go, Austria and its billions in CHF-denominated mortgages will almost certainly be next, and with it a test of the SNB's EURCHF floor.

From Reuters:

European Union Economic and Monetary Affairs Commissioner Olli Rehn interrupted informal talks with the Hungarian government as the Commission did not receive assurances about the government's plans regarding its new central bank law, his spokesman said.


"The commission decided to interrupt the preparatory talks in Budapest," Amadeu Altafaj told Reuters over the phone on Friday.


"Unfortunately we did not receive assurances concerning the intentions of the Hungarian government, (which went on) to push forward in parliament the vote of the law that could potentially undermine the independence of the central bank," he said.

Which brings us to the original point - we may have reached the point in Europe, so familiar to US investors, where bad news is actually good news (remember the Fitch downgrade of all key European banks last night? neither do we), whether due to increased repatriation of EUR or rising expectations of liquidity bail outs.

Or maybe everyone just wants the day, the week and the year to be over as nothing makes sense any more.

Both work.