Trading in eurozone periphery bonds at new lows

Financial Times
June 12, 2011

Trading volumes in eurozone government bonds issued by Greece, Ireland and Portugal have fallen to record lows as disagreements over another international bail-out for Greece unsettles investors and revives fears of a default.

The volume traded in Greek, Irish and Portuguese sovereign debt fell to €1.1bn in May, a sixfold drop from November and the lowest level since 2001, when data were first collected, says Tradeweb, the electronic trading platform.

Even eurozone pension funds and insurance groups, which have until now traded these bonds, have stuck to the sidelines recently because of the uncertainty, say fund managers.

However, Norway’s $570bn sovereign wealth fund is “very positive” about the long-term outlook for Europe, despite deciding to shift more of its assets into emerging markets.

Yngve Slyngstad, chief executive of Norges Bank Investment Management, which has responsibility for investing Norway’s North Sea oil money, said the eurozone debt crisis had created a catalyst for economic reform.

“The changes going on in Europe at the moment may actually be positive for the private sector,” he told the Financial Times, arguing that companies stand to benefit from “restructuring [and] maybe some narrowing of . . . the public sector”.

However, he acknowledged the “enormous challenge” facing eurozone policymakers and voiced concern over the potential repercussions of a possible restructuring of Greek debt. Norway’s so-called oil fund is one of the world’s biggest sovereign wealth funds and Europe’s biggest equity investor, owning about 2 per cent of all European stocks.

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