Spreadex Market Update

Early optimism fades



Investors this afternoon are looking at a market almost unrecognisable from the early optimism of this morning’s trade; indeed, the rally’s run ended in a shower of reality when Spain’s 10yr bonds dislocated from the equity market story, almost certainly quashing hopes of a rally sustained. Yields elevated as the selling continued, pushing 14 basis points higher by the afternoon in sympathy with concern over Madrid’s funding profile.

Some analysts are complaining of non-normal markets, where prices reverse as violently as they advance.

But to say that the market is not normally like this is true only depending on what time horizon is observed.

Lately, for example, markets have been less of a facility for investing than they have been for gambling; will Spain require a bailout, will the Greek people reject austerity, and where will investors lay their bets?

This headline-driven macro casino has seen cash pushed and pulled violently, with participants looking to profit from price changes as a result of binary outcomes.

If Spain’s banks get the bailout, risk on. If they don’t, sell. It’s not surprising, then, that those who got the bet right were quick to cash out.

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