THE LAW OF unintended consequences does not demand that these consequences will always be negative. Sometimes, even in the debt markets, good things can happen. When a number of European banks started to issue seven-day puttable certificates of deposit recently these deals turned out to be the answer not only to their funding problems but also to the investment requirements of money market funds on the other side of the Atlantic. In a refreshing case of "you scratch my back and I will scratch yours", banks seem to be prepared to issue these investor-friendly instruments because of the nature of the overwhelming demand for them.
The sovereign crisis in the eurozone, together with new regulations covering the 2a7 money market funds in the US, have unexpectedly created a perfect storm whereby there is huge pressure on US money market funds to find seven-day instruments in which to invest. Couple this with the contagion that many banks in peripheral European countries have suffered in recent months following the Greek sovereign debt crisis and you have a number of banks willing to issue such instruments just to keep their names in the market. "This is the market at its best," enthuses Christopher Conetta, managing director and head of global commercial paper at Barclays Capital in New York.
