Just because these “contagion” things are never contained, as of minutes ago, French CDS has just passed over 200 bps for the first time since January, as the fact that Spain can issue debt maturing in a few weeks or months is completely forgotten (rightfully so), and as the market remembers that both Spain and France have critical bond auctions tomorrow, of which the Spanish one does not mature within the LTRO. So will Paulson publicly shorting Europe be finally correct this time? For now we don’t know. What we do know is that the French contagion fear is spilling over to the country’s bank sector where SocGen was down 6% at last check, and EURUSD is tumbling as of moments ago. Time to reimpose the financial short-selling ban yet?
One of the more peculiar developments this morning was the odd divergence between the Spanish stock market, which was down over 3% at last check, and Spanish 10 Year bonds (that catalytic instrument to get LTRO 3, as all they have to do is rise to 7.50% and all shall be well), which had been green on the day all day, until now. As of seconds ago, the Spanish benchmark bond just crossed back into red territory with the yield spiking from an intraday low of 5.717% early to 5.89%, finally catching up with Spanish CDS which have been wider for a while, now that CDS is once again more liquid and credible than cash bonds… At least until ISDA is called upon to decide if and when a credit event has (never) occurred with respect to Spain. And since contagion feeds on itself, tomorrow’s Spanish auction is starting to look more and more concerning.
Posted by ZH