Dismal data from French manufacturing and industrial production along with growing chatter of a 'core' Europe strategy having been discussed is sending spreads among sovereign bonds notably wider. As a reminder Italy faces a rather large 1Y bill auction later this morning and the front-end of the BTP curve is underperforming as 2s10s inverts for the first time since August 1994.
While 5s10s has been inverted - due to CDS basis technicals - for a few days, the inversion of the 2s10s curve is truly the death knell. There were a few moments yesterday when 2s10s did invert but most were mis-timing on trades but this morning we crossed trades at almost 12bps differential in 2s10s - more inverted than yesterday.
French spreads just broke 152bps and Spanish spreads to Bunds also broke to new record wides.