How to Bring Down Borrowing Costs in Europe

So euro zone members want to bring down borrowing costs in Europe? Good idea. That was the one tangible idea from the G20 meeting, but unfortunately they didn't say how that would be accomplished.

A one Euro coin stands on a map of Brussels.
Sean Gallup
A one Euro coin stands on a map of Brussels.

Using the two European bailout funds to buy sovereign debt — the main idea discussed — is already possible, in addition to any purchases the European Central Bankmight make. But since any purchases of sovereign debt by these programs would subordinate existing bondholders, it is likely to INCREASE the anxiety of those bondholders, making private bondholders even less likely to own the debt.

Bottom line: sovereign debt risk is being transferred from private to public hands.


1) My take on the Fed today: Anything less than a clear nod to some type of easing will cause some profit taking. Some type of global easing is in the air: there is talk that the Bank of England, after Governor Mervyn King narrowly lost a 5-4 vote against more stimulus during a meeting in April, may be poised to do more stimulus as well.

2) We're great, but no one believes it: That seems to be the theme that stock exchange executives are sounding at today's hearing at the House of Representatives Financial Services Committee, which is holding hearings on market structure. Execs from Knight Capital, the NYSE, and Direct Edge will be testifying, as well as others.

While Tom Joyce from Knight will briefly bring up the Facebook debacle, Nasdaq will not be there. This will focus on old-fashioned "market structure" issues and less about Nasdaq's botched Facebook offering.

Mr. Joyce, in his written testimony, says: “…the U.S. equity market is the best functioning and the fairest market globally…There has never been a better time to be an investor (large or small) in U.S. equities.” “Remember that during the course of the last few years, with the exception of two notable exceptions, the equity markets have worked flawlessly”.

Everyone seems to agree on this, but here is Direct Edge CEO Bill O'Brien, who will open his testimony with the following words: “Investor confidence in U.S. equity market structure is perhaps at its lowest point since the Great Depression.”

Huh? How to reconcile this? It's tough. It's true: costs are lower than they have ever been for the average investor, but everyone seems to think the system does not inspire confidence.

The Securities and Exchange Commission knows about this: they recently approved two modest proposals to dampen volatility. First, a limit up/limit down rule that will limit trading in individual stocks outside of a specified band, and second, new market-wide circuit breakers. Both rules will not go into effect until Feb. 4, 2013.

The existing individual stock circuit breakers halt trading when prices move 10 percent or more during a five-minute period. This has created many stock halts that were not necessary. The new rule would allow stocks to trade within a "band" without halting and should go a long way toward preventing the printing of erroneous (including "fat-fingered") trades that were far away from the previous day's close.

There are other issues that will be addressed. NYSE CEO Duncan Niederauer will likely address the growing role of "dark pools," alternative networks that occur outside the "lit" market than now account for nearly one-third of all trading.

And what's this with Nasdaq not willing to participate when everyone else is there? I understand they don't want to get beat up on Facebook, but not even sending a representative to talk about market structure?

Bookmark CNBC Data Pages:


Want updates whenever a Trader Talk blog is filed? Follow me on Twitter:

Questions? Comments?