Macro and Markets update - No test, no stress, no stress, no test...

All is in the title, as clearly Mr Market has not bought into the latest results for the European banking sector stress test. EBA's assumption of a 15% loss on Greek bonds and a 1 to 2 percent "haircut" on Irish and Portuguese debt, cannot be deemed serious.

Eight European banks failed the European Banking Authority's stress test: five from Spain, two from Greece and one from Austria.
Most were smaller banks. The aggregate shortfall was measured at 2.5 bln euro, but the EBA points indicated that the system raised 50 billion euro of capital between January and April this year, for the positive side.
16 banks have a projected Core Tier 1 between 5% and 6% at end-2012. Raising the threshold to 6% would mean a shortfall of over 10 billion euro.

Stress test puts banks' euro zone debt in spotlight

"The EBA data showed banks held 98.2 billion euros of Greek bonds (67% held by domestic banks), 52.7 billion euros of Irish sovereign debt (61% held domestically) and 43.2 billion to Portugal (63% at home). Applying more realistic losses of 40% on Greek bonds and 25% on Portuguese and Irish debt would add over 45 billion euros to capital needs."

Here is the picture for Italy in the CDS space as seen on Friday:


Update on Spanish Sovereign 5 year CDS as of the 18th:

France still leading the pack of Core Sovereign CDS 5 year movement:

France is now trading above 120 bps, as I previously posted, France is now at the same level Italy was in April 2011.

Portuguese 5 year banks CDS, following the results, well as expected, wider:

As well some Italian banks in the mix:

Swaps on Spanish and Italian banks led the rise in financial debt risk, with Banco Popular Espanol SA soaring 72.5 basis points to 648 and Mediobanca SpA up 22 at 238, both records.

For the SOVx 5 year index, here is the picture of the widening we have seen so far:

As a reminder, 1/15th of the Index is made of Greece, same applies for Portugal and Ireland.

Government bonds update, the 2 year picture - it ain't pretty for some...

Greece 2 year at 31.7%, Portugal at 18.24%, Ireland at 21.5%.

And here is the 10 year Government bonds morning snapshot:

Italy 10 year now closed to 6% (highest level since 1999, new week, new record), Spain at 6.249%. Greece, at 17.2%, Portugal at 11.87% and Ireland at 13.49%.

Italy approaching 7% would be a cause of concern. The 7% mark prompted its smaller euro partners to seek bailouts, namely Ireland, Portugal and Spain and Italy's economy is three times larger than the combined three. The extra yield investors demand to hold Italian 10 year debt over German bunds widened to 3.48 percentage points last week, the most since September 1996.

The overall Itraxx indices picture this morning was wider as well:

• The iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 5 basis points to 194 and the subordinated index climbed 8.5 to 338, both the highest since January.
• The Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 10 basis points to 470, the highest since the second of December 2010.
• The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 3.5 basis points to 126.25 basis points, the highest in more than a year.

That's the latest and I haven't even mention the action on the equity space. Nasty as well.

On a final note, Bloomberg's chart of the day today was an update on the Misery index:

 A 28 year high according to ZeroHedge.

"The CHART OF THE DAY shows the correlation between the U.S.
Misery Index, or the sum of the unemployment and inflation
rates, and measures of consumer confidence."

And it is only Monday...ouch...

To be continued...unfortunately...