At 3pm yesterday stocks shot up on a Reuters story Greece reaches agreement with EU-IMF. I question the sustainability of that rally since the market that should be most impacted, does not seem to be reacting well.
5 year Greek CDS closed yesterday at 2050, well before this announcement came out. Since this new allegedly impacts Greece the most, you would expect an even stronger performance in Greece than in the U.S. stock market. Yet Greek CDS is 50 bps (about 1 point) wider today. SOVX closed yesterday at 240, the widest level of the year. I would expect, given the U.S. stock market reaction to the news, that this would be a lot tighter today. It is clearly a hedging tool, so shorts should be in a panic to cover this, yet it is wider by 2 bps right now. Same story for financial credits in Europe. Sovereign bonds are unch'd to slighly lower today, with Irish debt underperforming Greek and Portuguese bonds.
The corporate credit indices are behaving a little better, but in the U.S. are giving back some of their late day gains.
The fact that the markets that should be most impacted by the news that sparked the late day rally concerns me, so with stock futures up a little, I am adding to my (SPY) short position. I maintain a short in (HYG) by owning (SJB). I continue to cut my short whenever we get near the 200 DMA.
Signs that yesterday's rally should be sold
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