Looking at some of the recent trends in the euro zone debt market, one could be forgiven for thinking the region is doing alright.
Spanish and Italian funding costs have come down sharply. Data from the European Central Bank on Thursday showed consumers and firms put money back into Spanish and Greek banks in September. And there are budding signs that foreign investors are venturing back to the Spanish sovereign debt market. As one trader this week put it, the market is “healing”:
Liquidity is coming back, liquidity meaning the market can digest larger customer repositioning and flows again.
But data showing one in four Spanish workers were without a job in the third quarter of this year served a sour dose of reality.
Indeed, the stabilization in euro zone debt markets has mainly been fueled by promises of ECB support, should Spain decide to ask for aid.