Markets update - Credit - Rates - Equities - Dude where's my flak jacket?

That Subprime contagion feeling in the market for the last two days...

Huge movements in the European government bonds space.
In the two year bucket in the morning:

Italy and Spain getting punished, wider respectively on the 2 Year notes by 32 bps and 30 bps.
Italy 2 year notes is wider by 272 bps this year so far.
Spain is wider by 174 bps so far this year.
In the 10 year bucket in the morning:

France is wider by 75 bps versus Germany on the 10 year government bonds. This is getting interesting. Portugal and Ireland, correlation is super close to 1, on both the CDS and the 10 year yield level, respectively yielding 12.28% on the 10 year and 12.747%.

The 5 year Sovereign CDS picture is even more blatant on today's price action:

France is drifting away from the core European countries and its 5 year CDS level at some point today was being quoted 115-120 bps on the 5 year level, bringing it to the same level Italy reached back in April this year.

In relation to Portugal and Spain, the 5 year CDS spread for Portugal is continuing its meteoric rise:

At 1200 bps, things are turning ugly.

When it come to Credit indices - here is a snapshot of this morning main credit indices levels:

Crossover indices wider by 30 bps on the 5 year.
Itraxx Financial 5 year Senior close to 200 bps whereas Itraxx Financial Sub 5 year at 345 bps, 145 bps wider than the Senior Index level.
Sovx Western Europe touching a new high at 310 bps on the 5 year level, bearing in mind Greece is 1/15th of the index, also affected by the widening of Portugal, Ireland, Spain, Italy, France and co.

From a Macro point of view, interesting to see in the SovX indices, that Western Europe is currently trading 170 bps wider than Asia Pacific and 70 bps wider than CEEMEA (Central Europe and Middle East and Asia).

And Moody's keeps piling it on, Ireland just cut to junk (Ba1 from Baa3) with negative outlook.
"The key driver for today's rating action is the growing possibility that following the end of the current EU/IMF support programme at year-end 2013 Ireland is likely to need further rounds of official financing before it can return to the private market, and the increasing possibility that private sector creditor participation will be required as a precondition for such additional support, in line with recent EU government proposals."
Cut and paste from the 5th of July Portugal downgrade note from Moody's?

In a related rating action, Moody's has also today downgraded by one notch to Ba1 from Baa3 the long-term rating and to Non-Prime from Prime-3 the short-term rating of Ireland's National Asset Management Agency (NAMA), in charge of dealing with the toxic assets previously transferred from the banking sector.

Also in the news, a selective default for Greece according to an official speaking on the sidelines, is no longer off the table. Germany inflation rate held at 2.4 percent from May. UK inflation came out at 4.2% in June year on year, smallest rise since March 2011, but only a temporary respite.

QE3 more likely? At least that's what the latest price action in Gold would suggest, reaching a new high of 1577 USD and the trade deficit in the US reached 50.2 billion USD in May (Oil and China factors).

And equities? Well, major roller coaster day, financials and insurers, leading the downward price action for the last two days, more of the same today.

FX also very agitated with USD/JPY at 79.4205, down 1.05% on the day.
EUR/USD down to 1.3973, a 0.40% drop.

Sticky gum deal of the day:

It looks like New-York Attorney General Eric Schneiderman has sent letters to 20 companies including Goldman Sachs, BlackRock in relation to their participation in the 8.5 billion USD mortgage settlement agreement between Bank of America and Bank of New-York Mellon Corp. But, at least Bank of America has reached a settlement on Monday with Bond Insurer MBIA Inc. relating to insurance-like products sold by Merrill Lynch previously to MBIA Inc.
Bank of America hit a fresh new 52 weeks low at 10.20 USD on the news.


Who said summer was nice and quiet?