this also applies to the yen, which for long periods has continuously weakened against the dollar, perhaps for the very reason that more and more investors have been attracted by the yen carry trade, which requires yen to be sold on an ongoing basis. however, there is much to indicate that one should be careful with this type of speculation, even though for long periods the strategy has paid off. the yen carry strategy is risky. the problem arises when / if the yen suddenly strengthens considerably, so that investors sustain substantial losses. attempts by a large number of investors to extricate themselves from the same type of position will only cause the yen to appreciate more, leading to further losses. this was the case in 1998, when the yield spread between the yen and the dollar also attracted many investors to the yen carry trade. so in the course of just 3 days the yen strengthened by 13 per cent. this among other things imposed heavy losses on a number of hedge funds ( slide 11 ). compared to the yen's normal price fluctuations, its strengthening in this period was virtually impossible according to the probability distributions normally applied. this is what can happen, however, and this is why the strategy is compared to picking up nickels in front of a steam roller ( slide 12 ). economists use a concept called " fat tails ” to describe the statistical phenomenon that extreme events occur more frequently than the most used probability distribution would indicate. fat tails can sting investors when they strike. * * * financial integration has not only led to global systemic changes and new opportunities for professional investors. it has also instigated rapid financial innovation, with completely new opportunities for private investors. i am sure that a number of those present here today will be familiar with the principles of the carry investment strategy i have just described. we have our own little version of this strategy. in our case, the strategy is pursued by private borrowers, often farmers it is said, who raise loans in swiss francs rather than in danish kroner. a lower level of interest rates for swiss than for danish instruments makes this advantageous, at any rate for as long as the swiss franc does not strengthen excessively against the krone ( slide 13 ). the banks ’ lending to households in swiss francs has risen steadily since 2001 and today totals almost kr. 20 billion ( slide 14 ). during 2006 the increase in swiss franc lending flattened out, however, and by the end of the year the net lending was negative ( slide 15

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