Slovakia is in the spotlight today and that's how far we've fallen. Euro funding was boosted by about 11B evenly split between 1 week and 1 month operations. Liquidity is high into the reserve period start. Wednesday we will get a look at the "re-booted" 3 month dollar tender. The penalty is rather harsh at 100bp + 3m $ OIS + 20% haircut. 3 month $/Euro basis is 94bp.
The SP is adjusting back after 5 sessions of incredible rise. FI is finding some footing and the long end continues to be whipped around wildly. Greek 2 years printed a new high yield while everyone focused on Dexia. We still think the equilibrium US term structure is higher than here but a less linear move should be expected. The DOW needs to find about 140 points to be flat for 2011. The take away is "Its not the destination, its the journey." The quest for the Holy Grail of Stability has been a colossal failure. The chaos and volatility has changed the fundamental utility of capital markets.
Isak Dinesen wrote, " Perhaps he knew, as I did not, that the world was made round so that we would not see too far down the road." The constant violent turns in the market are keeping businesses from just that. Expect it to continue.