The world’s largest banks have recently expressed concerns about potential market “complacency” over public debt in Portugal and Spain, particularly given the narrowing of the spread between those countries’ bonds and Germany’s, despite the balance sheet risks in southern Europe. Experts interviewed by JE say the demand for these securities shows there is no sense of complacency, but they acknowledge that there appears to be a reordering of the hierarchy of spreads in the single currency.

The notice was launched by the European Central Bank’s Bond Market Contact Group, which is hosted by the body chaired by Christine Lagarde. This is one of the contact groups set up by the European Central Bank (ECB) and includes around twenty of the world’s major financial institutions (banks, insurers, funds and international asset managers) as well as the European Investment Bank (EIB) and the Commission.

Representatives of financial giants – Citigroup, Commerzbank, HSBC, Generali, JPMorgan, and Morgan Stanley, among others – recognize that Spain and Portugal have made progress in “financial fundamentals,” a development that has allowed banks and funds to make good investments. But they note signs of “complacency” on the part of the market, which could prevent further sharp rises in interest rates.

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