While the respective cross-country standard deviation of EURIBOR lending rates among euro area countries stood at more than 100 basis points for the one-month maturity, and at around 50 basis points for the 12-month rates in January 1998, since early 1999 both of these indicators have shown values not higher than, and normally below, one basis point.
As one example, some observers contend that new capital and liquidity rules have led to reduced market-making in secondary fixed-income markets and may also be responsible for occasional liquidity shortfalls and market gaps. We analyze this vulnerability in greater depth in today’s FSR. In fact, it is proving very difficult to assess the liquidity issue empirically.