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Briefing

Eurozone: Government Bonds

Appears in: Europe, Eurozone, Government Bonds

Critical Issues

Background:

As countries entered the European Monetary Union (EMU) in 1999, exchange rate risks were eliminated and yield spread among eurozone countries converged significantly. The theory of interest rate parity suggests yield spreads between comparable bonds should have vanished yet investors did not regard government bonds of different EMU countries as complete substitutes. Thus, spread remained and began to diverge significantly following the collapse of Lehman Brothers and the onset of the worst financial crisis in recent times. The EMU nation default or the potential break-up of the eurozone became more conceivable.

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Associated Readings

Analysis Nomura Securities Charles Diebel et al Jun 22, 2009 Markets underestimating Fed’s options on QE | ECB’s 1-year repo may extend steepening bias Analysis UniCredit Global Research Aurelio Maccario Jun 10, 2009 Eurozone: Time to talk about upside risks? Analysis SEB Merchant Banking Bo M. Andersen and Henrik Arp Jun 08, 2009 Despite the heavy interest rate reductions by the ECB, the market is currently pricing in a very quick return to significantly higher short-term levels Analysis Citigroup Adrian Cattley Jun 04, 2009 Record US & Europe steep yield curves — Short-end anchored by policy Analysis Natixis May 11, 2009 A review of European public debts in 2010 Opinions PIMCO Andrew Balls April 2009 PIMCO’s European Cyclical Outlook and Strategy Analysis Bank of New York Mellon Simon Derrick Mar 11, 2009 Trigger Points: Outflows from German Government Bonds Blogs A Fistful of Euros Edward Hugh Feb 25, 2009 Is French Sovereign Debt Now The Benchmark? Analysis Goldman Sachs (scroll down for english) Feb 19, 2009 A common Euro-zone bond: A good idea with challenging practical problems Analysis Fitch Rating (registration required) Jan 26, 2009 European Government Borrowing Analysis BNP Paribas Jan 23, 2009 EUR: Debt Bubble | The Sovereign EUR Test | US: TIPS Scenario Analysis Analysis Dresdner Bank Luxembourg S.A. June 2009 Across from the Palais: Economy bottoming out | L” “U” “V” is in the air Analysis Fitch Ratings (free registration) Brian Coulton et al Oct 30, 2008 Sovereign Implications of European Bank Bailouts

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