Morgan Stanley On Europe: “We’re Getting Worried”…(Look Out Below!!)
by Tyler Durden
We have noted the similarities between the current risk rally and previous years but Morgan Stanley’s Laurence Mutkin is “getting worried” that investors expect the second half of this year to be different (and consistently bullish). Much of the current risk-on rally around the world was sparked by Draghi’s “whatever it takes” moment theoretically reducing the downside tail-risk in Europe. Well, systemic risk in Europe is now at recent lows and just as in 1H12 and 1H 11, core yields are rising notably, peripheral spreads compressing, money-market curves are steepening, and 2s5s10s cheapening. Of course, he notes, 2013 is different from previous years (OMT for example) but much rests on how ECB’s Draghi responds to the recent (LTRO-repayment-driven) rise in EONIA forwards. Albert Einstein reportedly said that insanity is doing the same thing over and over again and expecting different results. Applying that to the European bond market – for the third time running, the year has opened well but it would be insane to expect a different outcome (than the typically bearish reversion) this time?