Abdullah Karatash
The European situation has not changed much
Midtown Manhattan's streets are in virtual lockdown as a bevy of senators, statesman, and financiers congregates in the city.
As for the markets, can you say flight to quality?
Treasury bonds rallied as the yield on the 10 year closed at 1.96% even as stocks closed off of their lows.
The Euro sagged closing under 1.37 against the U.S. dollar.
What drove the markets?
Just as it was risk-on mode last week in equities, today was risk-off mode.
New headlines kept hitting the tape about developments in the European saga.
The truth is that the European situation has not changed much compared to six months ago.
The headline parade is a set of iterations of what we already know.
Political governance issues continue to bedevil investors who are looking for clarity more than anything else.
Trading volumes were light and jittery in the bond markets.
After printing $25 billion in corporate bond new issues last week, the primary bond pipeline was noticeably silent today.
To illustrate how jittery the market is, the AAA-rated Nordea 2.125% of 2016 covered bond which came on Thursday at a spread over Treasury of +120.88 basis points was bid in the 130's today; about 10 bps wider (even though the primary came at a healthy concession to where the existing bonds traded).
The Nordea covered bond is a AAA Nordic bank's covered bond; covered bonds are senior to unsecured debt and have direct recourse to collateral.
The widening in Nordea makes no fundamental sense but reflects the overall market jitters.
In a market like this, fundamentals sometimes go out the window.
Primary continues to re-price secondary bonds wider.
The market will continue to be driven by systemic headlines out of Europe.
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