A further part of the decline in yields on government bonds appeared to reflect the additional cash in the financial system available to finance transactions in these and other securities. This was consistent with government bond yields declining by more than CDS premia. 3 Banks in Italy and Spain, for example, used new funds to significantly boost their holdings of government bonds (Graph 4, right-hand panel). While other euro area banks were less active in this respect, they may have committed new funds to help finance positions in government bonds for other investors. Or they may have purchased other assets.
