In relation to our "Stymphalian birds" (namely our bond vigilantes), they have recently turned their attention to France, leading to a risk of dislocation of the core of Europe and consequent spread widening in France 5 year sovereign CDS spread as indicated in Bloomberg chart below:
Sovereign CDS spreads in Core Europe as of the 12th of August:
France 5 year Sovereign CDS spread was at 148 bps as of the 16th, 35bps tighter than on the 10th of August.
Although president Sarkozy is pressing for an increase in the EFSF mechanism and even for Euro Bonds, Germany is still not in agreement with it, casting serious doubt on the strength of the European mechanism and the future of the European currency in the process.
But our "Stymphalian birds" attack last week wasn't only targeted at Sovereign CDS spreads of France, most of the banking sector took a pounding as clearly shown by the latest CDS spreads for Subordinated debt of some European banks:
The Itraxx Financial Subordinate 5 year Index is still very high:
Same with the Itraxx Crossover 5 year index, it remains still very elevated:
Europe is struggling as America is turning more and more Japanese.
Another Bloomberg Chart of the Day - US Treasuries "Butterfly" shows the US economly is tracking Japan:
"The CHART OF THE DAY shows the butterfly spread for two-,
five- and 10-year Treasuries was negative 0.53 percentage point
on Aug. 12, down from positive 0.262 on March 31. That’s the
least since November and is less than the level for Japanese
debt. The measure is calculated by doubling the 5-year yield and
subtracting 2- and 10-year rates. A negative reflects bets the
Federal Reserve will stick with its Aug. 9 pledge to hold
interest rates through mid-2013." - Bloomberg
So there you have it, slow growth, lack of political leadership and concerns over the credit rating and fiscal policy challenges for the US, UK Stagflation with inflation coming at 4.4% meaning another letter to the chancellor, courtesy of Mervyn King, Euro troubles going unresolved still with no Euro Bonds.
The labours of our European hero Heracles are indeed appearing more and more like unfinished business.
To be continued...