With US closed today, Europe isn’t doing too much. Notable was the move higher in credit this morning, that has since highs reversed lower, and credit now trades unchanged on the day.

Investors have lately been talking about the US 10-year yield moving lower as well as the yield curve trading inverted. This theme will continue.

A theme that was very much in fashion but has lost some of the focus is the Italian situation. Rhetoric from Italian politicians continue, but more notable is the fact Italian 10-year yields have come off rather quickly as of late.

In mid-November, Italian 10-year yield reached highs at 3.7%. Since that local high, the move lower has been one-way traffic. We saw an intraday low at 3.06% today. Note the trend line was broken a while ago and we are trading below the 100-day average.

People spoke of a possible “contagion” effect spilling over to Spain a few weeks ago. Spanish yields popped higher and reached highs of 1.8% in mid-October. Since then the move lower in Spanish yields has been substantial. We are seeing new lows since September today as we approach the 200-day average.

The MIB continues trading inside the big negative channel, but has lately been attempting building a base. 19 000 is a big support to watch.

Spanish IBEX is also trading inside the big negative channel as well as the fact IBEX has been putting in higher lows over past two months. 9000 is a huge level to watch.

Everybody knows Italy is in bad shape, but how does the MIB compare to other indices in Europe? Below is a 6-month chart showing the percentage performance. From top to bottom: IBEX, Eurostoxx 50, MIB and the worst of them all is DAX.

Below is the volatility spread between MIB (white), DAX (green) and SPX (orange). Italy is surely a mess, but neither DAX nor the SPX seem much better…

Source: charts by Bloomberg