The initial rises in bond yields can be largely explained by the concerns raised by the scope and possible extent of the “private sector involvement” in Greece, which was set as a condition for a second programme at the euro area summit of 21 July.11 Some investors may find it rational to start shortening sovereign debt and others simply to reduce their exposures to countries in the currency union since market concerns about government debt sustainability can become self-fulfilling if not tackled.
e. Horizontal Repurchase Transactions (Horizontal Repos) – In September 2008, the interbank repo backed by government securities as collateral was rolled out to facilitate liquidity re-distribution among commercial banks. However, uptake has not been vibrant, but the CBK is working on modalities that will resolve market constraints so far raised by participants.