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Different Signals:

Credit markets are deteriorating with financials the notable laggards and yet equities in US and Europe are beating to their own ‘Birinyi’ drum. European sub financials are the worst performers, which makes sense post the Moody’s downgrade concerns, but the scale of recovery this week is incredible in terms of equities post Friday rally relative to credit market’s perception of reality. At the same time, Italian all-in cost of funding – yields – are near record highs post auction, even if spreads are flat and off the highs.

Stocks are now back to the highs from last week. Corporate (investment grade and high yield/crossover) credit is back to only Wednesday highs but is rolling over and financials are notably weak with Seniors only 20bps off their record wides of last week.

Italian Yields are near their highs while spreads are off their wides – but the latter reflects core contagion and so yields are becoming more critical for risk comparisons.


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