European troubled sovereign debt trading hits new lows

Trading volume in sovereign bonds of Europe’s indebted periphery hit its lowest point since 2001 as investors fear ratings agencies could cut Greece to default status, and its debt could be restructured.

Trading volumes in government debt of Ireland and Portugal also hit nadirs. with combined turnover for the three nations of €1.1bn in May.

This was the lowest since trading platform Tradeweb began collating volume data in 2001. It was a sixfold drop from November volumes.

Yields on Portuguese 10-year bonds, and insurance on Greece defaulting, hit fresh highs on Friday.

If Greek debt is downgraded to default status, forced selling by funds barred from holding defaulted paper would likely ensure, possibly causing contagion to Irish and Portuguese paper.

Berlin is fighting the European Central Bank over who should take write-downs on Greek debt if haircuts are imposed.

It is not certain, however, that contagion would spread far beyond Ireland and Portugal, in the case of Athens restructuring its borrowings.

The Financial Times reported this morning markets in Spanish and Italian bonds held steady in May, with €47.1bn volumes close to recent highs posted in March.

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