European leaders are poised to use two rescue funds to buy Spanish and Italian debts in a £600bn bail-out, as a Bank of England policy maker tells traders to prepare for a devastating market seizure like that seen as the collapse of Lehman Brothers.
By Philip Aldrick, Economics Editor, and Robert Winnett, Political Editor, in Los Cabos, Mexico
11:06AM BST 20 Jun 2012
Cheap and ready access to the liquid assets that oil the financial markets are under threat from both state-imposed capital controls and flagging confidence in the euro, said Robert Jenkins, a member of the Bank’s Financial Policy Committee.
Without easy access to liquidity, markets could seize in a re-run of the credit crunch after the collapse of Lehman Brothers, he warned.
The warning comes after it emerged last night that European leaders are poised to announce a £600bn deal to bail out Spain and Italy.
Two rescue funds are to be used to buy the debts of the troubled economies, the cost of which have reached record highs in recent weeks.
Spain and Italy’s bond yields eased this morning on the news. Spain’s ten-year bond yields were down 14 basis points to 6.8 per cent, after falling below the symbolic 7 per cent barrier. Italian bonds fell ten basis points to 5.79 per cent.
European markets also rose slightly on opening this morning.
Speaking at the Global Alternative Investment Management conference in Monaco, Mr Jenkins warned: “Those of you who traded asset backed securities in 2008 can testify to the speed with which liquidity can disappear. Yet despite these examples, many continue to assume that … ‘liquidity’ is free and will be freely available.
Read the rest of the article here: The Telegraph