Sovereign Bond Markets in State of Flux
As revealed at this seminar with top experts in sovereign bond markets, the equation LTRO + ESM – PSI = LY roughly captures market sentiment. In effect, the longer-term refinancing operations (LTRO) carried-out by the ECB and the future European Stability Mechanism (ESM) are easing the pressures in sovereign bond markets and are seen positively by market participants. Yet private sector involvement (PSI) in the rescue package for Greece is believed to have had the opposite effect, undermining market confidence despite reducing moral hazard. As a result of the interaction of these three factors, investors are expecting low yields (LY) in Europe, coupled with uncertainties about the future. To overcome this impasse, experts and investors present at this seminar favoured common issuance, introduced progressively over the medium term, in combination with structural reforms, to make the equation work to the benefit of member states and their citizens.