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How dependent are EU government bond markets on the UK?

How dependent are EU government bond markets on the UK?

London-based banks play a key role as so-called primary dealers in EU government bond markets. This position is made uncertain in the event of Brexit, in particular a possible no-deal Brexit which could happen as early as end March. This note analyses the geographical distribution of the primary dealers into three classes: those located in the issuing country, in another EU27 member state, or in the UK. Particular attention is paid to the extent to which different member states depend on UK-based banks for their primary dealing. As it turns out, the member states most dependent on the UK-based primary dealers for their government bond markets are Italy, Ireland, Finland, and to a lesser extent Greece. Italy, however, has taken measures to mitigate the impact of a possible no-deal Brexit by guaranteeing the continuity of financial services between the UK and Italy in either direction until the end of next year. The least dependent countries include France, the Scandinavian countries, and most countries of the former eastern bloc. Primary dealers are appointed by government debt management agencies to act as market makers of their bonds, in exchange for access to primary market auctions, syndicated issues, and non-competitive bidding facilities. This is made necessary by the fact that bond markets are inherently less liquid than equity markets, as explained for instance in the preamble to the European Primary Dealers Handbook (Association for Financial Markets in Europe, 2017).