European Bank vs. Bund Correlation
I think even when the ECB was saying that they were going to raise rates was not being bought by investors. In the chart below the inability of banks stocks to perform is quiet telling. deterioration in growth is also to blame for the inability of European banks to see some performance. As the char below shows the underperformance of European banks relative to bunds and the gap widening is quiet telling. The correlation in pane 2 shows the 90d correlation between Banks and Bunds the bottom was the lowest we have seen in almost a decade. While that correlation has improved slightly we are still low relative to historically average. So short Europe might still be a trade to watch.
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Updated Chart: Danilo Masoni
Nathan Worden's avatar
Wow it looks like at no time between 2018 and now has the spread between the 10 year bund and European Banks been wider– and especially not with the 10 bund being on top.

I'm assuming this is the Germany 10 year government bond? Is that the '10 year bund' in the above chart?
Deer Point Macro's avatar
@nathanworden yes exactly it is the 10y bund I realized my phone must of autocorrected Bund to bond.

However, I am expecting this to tighten as the ECB changes course. With that being said however still extremely bearish European banks.
Nathan Worden's avatar
@deerpointmacro Got it— makes sense with the auto correct. Thanks for the thoughts on the ECB and European banks in general 🙌

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