The European equity markets are experiencing a sharp sell off and the US futures suggests an equally dismal start for US stocks. 10-year Treasury yields are at 18 month lows and fast approaching 2%. Likewise, UK Gilts are also lower as investors flee risky assets.

An interesting development is that Italian and Spanish bond yields remain remarkably calm. This suggests that the ECB may be actively buying their debt. Although Portugal's bond yields have been drifting higher, there has been a lack of volatility in Europe's bond markets since last week. In the past, peripheral bond yields (including Spain and Italy) tended to rise as stocks fell, however it looks like the ECB may be easing the load on Europe's debt markets.

Interestingly, Europe's banks continue to fall even though short-sellers have been banned from the market. If the ECB continues to step in and buy sovereign debt then investors may worry less that there will be a disorderly default in the Eurozone, which would protect the banks. We need to wait for more confirmation from the ECB over the next few weeks to know for sure if it has been actively buying debt, but the calm in Europe's bond markets doesn't feel natural.

Is the ECB doing the heavy lifting for Europe? Spanish (orange), Italian (yellow) and Portuguese (white) 10-year bond yields  all remain remarkably calm even though stocks are being dumped with gusto.

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