Weekly Eurozone Watch: Comfortably Numb

Key Data Points
German 10-year Bund 18 bps higher;
Italy 10-year 97 bps tighter to the Bund;
Spain 141  bps tighter;
Portugal 140 bps tighter;
Ireland 50 bps tighter;
Greece 197 bps tighter;
Large Eurozone banks 5-15 percent higher;
Euro$ up 1.7 percent.

Commentary
Thursday’s announcement by the ECB of their new Outright Monetary Transactions (OMT) policy has taken near term sovereign default off the table, which was also the cancer infecting the Euro banking system.   Thus,  in theory,  the OMT is much more significant than the LTRO announced late last year, which circumvented a Euro banking collapse and also sparked a multi-month rally in risk assets.

We have our doubts that the OMT can be implemented smoothly and believe it could face significant political constraints in both the core and periphery.  More importantly,  all the structural problems of the Euro construct remain.

At some point the markets will test the political fortitude of EU policymakers.   Until then, however, they should remain comfortably numb under Mr. Draghi’s anesthesia.  We note, again, the significant sovereign spread tightening x/ Spain this year in the Eurozone.  Check out Portugal — in almost 500 bps.   Wow!

Continue to monitor our Weekly Eurozone Watch for early signs of deterioration.

(click here if charts are not observable)

This entry was posted in Weekly Eurozone Watch and tagged , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.