What Do PIIGS Bonds Know That Stocks Are Oblivious To?

While expectations of a Draghi rescuing us all from our bad selves remain extreme - well he did promise! - it seems the market that one would expect to be the most likely to benefit from his 'Aid' is increasingly not Kool. The last two days have seen Italian and Spanish sovereign bond spreads turn back down - even as stocks in those countries keep up the good wealth-building work (with the front-end wider by around 30bps today alone). At the same time, financials have seen their credit risk widen back out (especially seniors) and XOver (the European high-yield credit market) did not exude the kind of equity ebullience that we are used to in a pure risk-on, central-bankers-have-our-back period.

 

Spanish Bonds vs Spain's IBEX post-Draghi...

 

Italian Bonds vs Italian Stocks post-Draghi...

 

 

and as usual, stocks outperformed credit...

 

Meanwhile, short-term rates in Germany, Holland, Switzerland, and Finaldn now all have negative rates and the front-end of the Spanish and Italian bond curves are leaking abck wider once again today (ITA 2Y +27bps back over 4% and SPA 2Y +32bps back over 5%)

Charts: Bloomberg