Basel 2.5 meets the Sarkozy trade: new rules could hit bond demand

Regulators want banks to hold more capital against government bond positions, but the regime is being changed at a time when the industry is the main source of demand for big eurozone issuers such as Italy and Spain. In addition, banks fear modelling difficulties could make the numbers meaningless. By Laurie Carver


It's known as the Sarkozy trade – using the cheap three-year loans doled out by the European Central Bank (ECB) in December and February to buy government bonds, particularly those issued by a bank’s own sovereign. According to ECB data released at the end of April, Italian banks added €67.5 billion to their holdings of eurozone government debt in the four months from the start of December to the end of March, while Spanish banks added €77.4 billion – exactly what France’s former president

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