UPDATE: There’s a huge rally in Spanish and Italian bonds in European trading. Spanish 10-year yield falls around half a percentage point to 6.44%; Italian 10-year down more than 30 basis points to 5.85%, according to Tradeweb. The moves are even more dramatic at the short end of the curve. The Spanish two-year is yielding 4.70%, down about 80 basis points. That’s a very positive sign.
Equity markets are up, and bank shares in Spain and Italy are rallying. London’s FTSE 100 Index opened 1.8% higher, Germany’s DAX gained 2.5% and Paris’s CAC-40 Index jumped 2.9%. The euro is substantially stronger against the dollar at $1.2586.
The headlines: The euro zone will move to create a single banking supervisor “involving the ECB” and will, once that’s in place, permit its bailout fund to recapitalize ailing banks directly. The WSJ story is here.
So what’s good for investors, and what’s still missing?
The short version: Direct bank recap would help cut the sovereign-bank loop that has bedeviled Spain–that’s good for markets. But there’s no apparent move toward what investors really want: broad purchases of government debt by euro-zone institutions. And the overarching problems–the lack of a fiscal union, the lack of commonly issued debt, the gaps in country competitiveness–remain unaddressed.