European Banks Tumble As French Bond Crash Reactivates "Doom Loop"

The sellside (especially those employed by European banks) spent much of yesterday scrambling to convince markets and bond traders, not to read too much into the recent meltdown in French bonds, claiming that i) it was due to a pile up of shorts and not due to fundamental reasons and the selling would therefore reverse, and ii) it would not spill over into the domestic banking sector, avoiding a relapse of Europe's scary "doom loop."

To be sure, French OATs did bounce a bit on Tuesday after Marine Le Pen and Jordan Bardella unveiled a shadow budget aiming to cut spending by more than €140 billion by 2032, and with lower oil and a broader risk bid lending a hand, which collapsed 10Y OAT-Bund spread collapsed 12bps to 125bps.