It has been an outstanding week for European fixed income. The big catalyst was the decrease by the central banks in the cost of emerging funding to the banking system. We’ve fallen from 7.33% to 6.63% at the moment. Spain has fallen even more.
The central banks have bought Europe a little time to get its fiscal act in order and Merkozy is working feverishly to put tighter fiscal governance in place without having to hold a full-blown Treaty amendment process. They’ve got a chance. over the next week. If the December 9 summit does not deliver, it’s gonna get ugly.
