Lagarde storm meme

Christine Lagarde was asked repeatedly about 'fragmentation' in eurozone bond markets today. Once she even went off script to dwell on the topic further.

The code word really means that borrowing costs in Italy, Greece and other highly-indebted eurozone countries are rising faster than in the wealthier core, which is Germany and France.

She repeatedly hammered on this point but perhaps the repetition added to the uneasiness, because there's no new plan in place. The euro reversed gains. The ECB today said it will end net asset purchases in July. Within that system purchases still continues (though not 'net purchases) and she highlighted how there's flexibility , which surely means that re-investment will be shifted to indebted countries.

But here's a limit and there's also the looming reintroduction of eurozone fiscal limits, which will probably be pushed to 2024 but will eventually cause some very difficult and unpopular fiscal decisions, adding to growth risks.

The market isn't waiting around to see how it all plays out.

Italian 10 year yields are up 17.9 basis points today and 260 basis points since December. Borrowing at 3.6% for Italy's government rather than 1% is an enormous difference in total costs. But with the ECB just at the start of a tightening cycle and stopping QE, this is only early innings.

Italy 10 year yields

Greece is already paying 4.15% on new 10-year borrowing, up 16.3 bps today.

German yields have moved up as well but the spreads are widening. Today German 10s are up 5.2 bps.

What the market wants to see is a plan for the ECB to contain this, otherwise it's right back to the post-global financial crisis playbook and that's a major headwind for the euro.

So after today's initial pop in the euro, it's now lower on the day and just below 1.0700.