“Buyers’ strike,” for a number of reasons, is a good way to describe the state of Europe’s sovereign debt market at the moment. It has really affected the lack of liquidity even in prime long-dated AAA bonds like those of France — see those vaulting spreads to German debt — but we think that it must really end up hurting sovereigns’ short-term refinancing needs, in the primary market (auctions) in particular. Spain had a T-bill auction on Tuesday with the same problems. Italian T-bills in the secondary market were (sorry to bring out the cliche) canaries in the coalmine before last week’s carnage.What this means is that European countries seeking to raise short-term capital are, in a word, screwed. Their cost of borrowing is going to go through the roof as they must offer higher and higher yields to attract bond buyers.
Wednesday, November 16, 2011
A Buyers Strike in Eurozone Bonds?