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Bonds without Borders: A History of the Eurobond Market by Chris O'Malley

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CHAPTER 10 Busts and Bailouts 2007–2010

The complete evaporation of liquidity in certain market segments of the U.S. securitisation market has made it impossible to value certain assets fairly regardless of their quality or credit rating. In order to protect the interests and ensure the equal treatment of our investors, during these exceptional times, BNP Paribas Investment Partners has decided to temporarily suspend the calculation of the net asset value as well as subscriptions/redemptions, in strict compliance with regulations, for these funds.

This statement by BNP Paribas Investment Partners on 9 August 2007 referring to three of their funds, which had fallen 20% in value in less than two weeks, shocked European markets and is considered by many to be the trigger event which turned a developing US financial crisis into a global financial crisis that has embroiled the international markets for the last seven years. The Guardian's economics editor commented: ‘As far as the financial markets are concerned, August 9 2007 has all the resonance of August 4 1914. It marks the cut-off point between “an Edwardian summer” of prosperity and tranquility and the trench warfare of the credit crunch – the failed banks, the petrified markets, the property markets blown to pieces by a shortage of credit.’1

Fears of a broader credit squeeze developing prompted the European Central Bank and the US Federal Reserve to pump roughly $150bn into capital markets to boost liquidity. ‘Everyone ...

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