Merkel Short-Sale Ban Will Harm Government Bond-Market Liquidity, ING Says

German Chancellor Angela Merkel’s ban on naked short sales of European government bonds may dent trading in the securities at a time when greater turnover is desirable, ING Groep NV said.

“People are trying to interpret what this will mean for the market -- for example, whether you can short bunds as a hedge” against falling bond yields for periphery nations, said Wilson Chin, a fixed-income strategist at ING in Amsterdam. “There is a lot of uncertainty out there. It’s going to harm liquidity.”

Bond yields of Europe’s most-indebted nations have soared this year, led by Greece, as investors bet they would struggle to avoid a default. The slump forced the European Union to forge a $1 trillion rescue plan and the European Central Bank to buy the countries’ bonds.

“Liquidity and calm is what we really need after the EU, ECB rescue package,” Chin said. The bigger concern is “a question of confidence in the fiscal consolidation” of those nations.

To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

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