A severe bout of illiquidity has hit eurozone government bonds, threatening to impair the ability of some governments and other borrowers to meet their funding needs in coming months, say market specialists. The development is striking because it underlines the degree to which problems in the US subprime mortgage market are spilling over into seemingly unrelated sectors, including traditionally safe government bond markets in the single currency region. In recent weeks, risk premiums on eurozone government bonds, except those of Germany – which is the largest and most liquid market in the region – have been rising. The situation could affect governments in the eurozone, as well as many other issuers from the region, including supra-national and quasi-government agencies, which have traditionally tended to issue a large proportion of their debt at the start of the calendar year – unlike in the US and UK.

This entry was posted by Gwen Robinson on Monday, December 3rd, 2007 at 5:49 and is filed under Capital markets. Edit this entry.