Markets update - Credit - Rates - Equities - The Heat is on...

The Heat is on

The heat is on, on the street
Inside your head, on every beat
And the beat's so loud, deep inside
The presure's high, just to stay alive
'Cause the heat is on

Oh-wo-ho, oh-wo-ho
Caught up in the action I've been looking out for you
Oh-wo-ho, oh-wo-ho
(Tell me can you feel it)
(Tell me can you feel it)
(Tell me can you feel it)
The heat is on, the heat is on, the heat is on
the heat is on Oh it's on the street , the heat is - on

Song by Glenn Frey - Berverly Hills Cop soundtrack.

Another day, another choppy session, indeed the Heat is on and not only on the thermometer reading.

Here are a few market updates:

For a start, that Lehman feeling, courtesy of Bloomberg Chart of the Day:

Negative US yields like in October 2008.

Italy and Spain 10 year bonds still widening:
Italy, 10 year yields surging to new record:

and Spain as well:

One of the reason behind the recent widening can be find in Bloomberg's article published today.
Italy, Spain Stuck in No-Go Debt Zone for Merrill, DWS Funds: Euro Credit

"Merrill Lynch Global Wealth Management, unconvinced that the second Greek bailout has stemmed the debt crisis, won’t put any of its $1.5 trillion of assets into Italian or Spanish bonds."

"Merrill isn’t alone: Frankfurt-based DWS Investment, which oversees $390 billion for clients, and Legal & General Investment Management say they are “underweight” Spanish debt."

Italy is Europe's biggest bond market with 1.8 trillion euros worth of borrowings. Debt to GDP stands at 120%, trailing Greece at 158%, while Spain is still at a very manageable level of 68.1%.
Last Friday Moody's placed Spain's Aa2 rating on review for a cut adding pressure on an already weak market following the US debt ceiling debate and the dismal US GDP figures for the second quarter.
In the CDS space for peripherals:
Spain's 5 year CDS level surging 14 bps to 404 bps and Italy up by 23 bps to 356 according to CDS data provider CMA.
SOVx Western Europe 5 year index up by 14 bps to 291, record was set at 306 bps on the 18th of July.

Hence the flight to quality witnessed so far on 10 year German Government bonds:

and record low on the swiss two years notes:

Here is the 10 year bonds market overview in Europe:

and here is an overview of the two year bond market in Europe:

Seven straight day of loss for the S&P 500, same story for the CAC40 index in Europe, with another week economic data, consumer spending falling 0.2%, slowest growth in personal income since November.

Everyone is focusing on the friday release of the employment figures for the US.

Swiss Franc strengtening more than 2% to a new record of 1.09465 per euro and up 1.4% against the US dollar.

Gold at 1640 USD an ounce, new record.

Big surprise as well in the CDS space with a widening of Sweden 5 year sovereign CDS as well as Swedish Financials:

Swedish Financials 5 year CDS surging today:


According to OECD data, Sweden economy will grow 4.5% this year. Government surplus is 0.3% of GDP, projected to increase to 1.4% in 2012. Gross government debt is at 45% of GDP and falling. The GDP in Sweden expanded 1 percent in the second quarter of 2011 over the previous quarter. Inflation in June was 3.1%.
Sweden 10 Year Government bonds yields.

Sweden's Government Bond Yield for 10 Year Notes declined 13 basis points during the last 12 months.

It is going to be a long week and I am already feeling the battle fatigue, "Risk Off" is still the strategy "du jour" and the Heat is truly on.


To be continued...