Eurozone Crisis Sparks Widespread Market Chaos and Arbitrage Opportunities
The article discusses how information about the risk of countries defaulting on their debts can spread in bond markets. By studying the Eurozone crisis, the researchers found that when one country's default risk increases, it can lead to a chain reaction affecting other countries' bond yields. This can cause market segmentation, higher volatility in risky countries, and lower yields in safe countries. The way primary markets are set up can also impact how information is acquired and traded.