Wednesday, November 16, 2011

A Buyers Strike in Eurozone Bonds?

Financial Times:
“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.

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