Don’t count on European credit growth

We’re a little bit late to Friday’s note from Citi’s Hans Lorenzen and Aritra Banerjee, but it’s a pretty good assessment of the tensions in European credit markets at the moment:

Without implying causation, corporate credit spreads tend to be highly correlated with European bank stocks. But recently, those conventions have clearly broken down. Most notably, returns on non-financial credit have seemingly decoupled completely from returns on bank equity.

But bank credit returns have also diverged notably from equity returns. And incidentally, the correlation between financial and non-financial credit spreads has broken down too – in case you were in any doubt.