Fixed income newsletter
July 2010: Volatility continued to characterise European markets in June. In the Eurozone, investors still favoured the relative safety of German Bunds versus peripheral government bonds amid continued worries surrounding a possible double-dip economic scenario in the area. Comparatively, in the UK, gilts outperformed corporate debt as investors assessed the impact of higher taxes and reduced spending announced in the government's emergency budget.
The focus of attention has been centred on European banks, both their funding and capitalisation requirements. At the end of June the first of the ECB's one year Long-Term Refinancing Operations (LTRO) expired. The one year LTRO was introduced under exceptional circumstances to provide stable long-term funding to the embattled European banking system and the June 2009 allotment (€442bn) represented roughly half of the total liquidity operations outstanding (€879bn). In the event €243bn of the €442bn was rolled over into the new shorter-term operations on offer from the ECB.
