the trend to offer borrowers a selection of different financing models, including the opportunity to combine fixed - and adjustable - rate loans. adjustable - rate mortgage loans are popular with good reason, since the mortgage payment for the first year is currently considerably lower than for a traditional fixed - rate mortgage loan. on the other hand, the interest rate can fluctuate. this is an important part of the explanation for the normally lower level of short - term interest rates than long - term rates. the risk scenario is therefore entirely different to that for traditional mortgage financing. it is sometimes emphasised that the borrower can convert to a fixed - rate loan at a later time, if the short - term interest rate increases. however, this does not cover the risk at all, since one cannot count on the long - term interest rate remaining constant if short - term rates have increased substantially. together with his or her advisers the borrower must therefore evaluate closely which risks he or she is exposed to. the borrower needs answers to a number of questions such as : “ what will happen to my mortgage costs if...? ”. this “ if ” can be related to family matters and external economic events, including interest - rate increases. it is like the way many investors set up various " stress scenarios " before an investment decision is taken in order to assess the potential effect of the investment on their economic position. it is vital that borrowers do not just focus on the mortgage payment for the first year and see adjustable - rate loans as a less expensive version of the traditional fixed - rate mortgage - credit loans. in 1997, danmarks nationalbank found it appropriate to point out that the ongoing adjustments to mortgage financing arrangements would not lead to any changes in monetary policy. the fixedexchange rate policy implies that danmarks nationalbank raises the lending rate if the danish krone comes under significant pressure due to speculation. this remark was intended to be an item of " consumer information " to mortgage - credit customers. it was naturally also influenced by the fact that on several occasions during the 1990s we had to counter speculative attacks on the krone by significantly raising the monetary - policy interest rates. this statement has been considered and debated in the media on numerous occasions during the last five years. so this risk is hardly likely to be overlooked by many home buyers. some have perhaps even misunderstood and believe that this is the only risk presented by adjustable - rate mortgage loans denominated in kroner. however, it

the financial sector. however spreads are still high compared to pre - august 2007 levels ( see slide 8 ). even sovereigns have not been immune to the increased credit risk valuations ( see slide 9 ). following the announcement of the rescue packages, the cds - spreads for sovereigns seem to have stabilized. the mandate of the sub - committee is to aim at promoting further the integration and better functioning of eu government bond markets thereby impacting positively on the financial markets as a whole. in relation to issuance terms in this volatile market the bond yields have been declining compared to level in july 2008 ( see slide 10 ). this movement has primarily been driven by a flight to safety. nevertheless the demand for government securities can be quite volatile. the latest round of financial turmoil has indeed lead to pronounced increase in the volatility both in the stock and bond market ( slide 11 ), which from an issuers standpoint makes it difficult to manoeuvre in terms of coming out with timely issuances in such an unpredictable market environment. in addition increased credit risk and demand for liquidity have widened the yield spread to german government securities and thereby aggravating the relative issuance terms for other emu - countries ( see slide 12 ). under the assumption that the yield spread between member states purely can be explained by differences in credit risk and liquidity, one may use prices on credit default swaps ( cds ) as an approximation for the credit risk premium. the liquidity risk may then be defined as the residual of the yield spread after deducting the credit risk premium ( see slide 13 ). the calculation shows that the widened yield vis - a - vis germany in 2008 compared to 2007 is predominately caused by increased credit risks. the financial turbulence has elucidated the role of the government securities as safe havens ( see slide 14 ). under normal market conditions the swap market may function as a substitute for government securities especially in terms of it's virtues in regards to pricing. however the increasing credit and liquidity premiums imply that this type of substitution is no longer valid. market conditions in general banks are under pressure. they experience rising funding costs and declining market value ( see slide 15 ). the capacity of the balance sheet is constrained making it more difficult to handle the intermediation phase between issuers and end - investors. in addition, the constrained balance sheets combined with increased volatility have lead to widened bid offer - spreads in the secondary government