The credit strategists at BNP Paribas were kind to sum up on these developments yesterday:
While sovereign concerns are still very much prevalent, the positives of agreement on euro stabilisation fund details,followed by the ECB meeting extending 3-month refinancing operations acted as the initial catalysts (Chart1) and developments of European bank stress tests and the better-than expected Spanish auction over the past week has helped the momentum to continue. Credit has decoupled away from the SovX somewhat, as the 1-month correlation between iTraxx Main and SovX has fallen to 56% (lowest since April), while correlation between senior financials and SovX has fallen to 82% which is still high historically. In general, compression has been the theme as senior financials (34bp tighter since the ECB meeting) has outperformed SovX (4bp tighter over the same period) and Main (-20bp). An additional supporting factor has been rising equities on rather thin volume that have shrugged off the recent mixed to slightly disappointing macro economic data.
Click on chart to enlarge, courtesy of BNP Paribas.
July 1 could be the day liquidity dies? Not so sure yet ...