EU investigating possible rigging of debt market, sources say

(Changes lede with sources confirming EU investigation)

By Foo Yun Chee

BRUSSELS, Feb 10 (Reuters) - EU antitrust regulators are investigating several banks for possible rigging of the $1.5 trillion government-sponsored bond market, two people familiar with the matter said on Wednesday.

The investigation is the latest in a series of actions against suspected wrongdoing in financial services, including alleged attempts to rig the markets for Libor and foreign exchange.

The European Commission has sent questionnaires asking about the price of supra-national, sub-sovereign and agency (SSA) debt to a number of market participants, the sources said, confirming a Financial Times report on Tuesday.

Debt issuers in this market includes the European Bank for Reconstruction and Development and agency borrowers such as the German-backed development bank KfW. Such bonds often covered by an implicit or explicit state guarantee.

IFR, a Thomson Reuters (Dusseldorf: TOC.DU - news) service, reported in January, quoting several sources, that four London-based traders of SSA debt were being investigated by the U.S (Other OTC: UBGXF - news) . Department of Justice for possible manipulation of bond prices.

The sources said one worked at Bank of America Merrill Lynch, another at Credit Agricole (Swiss: ACA.SW - news) , a third at Nomura and the fourth at Credit Suisse (LSE: 0QP5.L - news) . All four had vacated their desks pending the outcome of the U.S. investigation, they said. The banks declined to comment at the time.

The Justice Department is investigating allegations that SSA traders at different banks agreed prices and shared information on certain U.S. dollar bonds in chatrooms they established for the purpose, the sources quoted by IFR said. The Justice Department declined comment.

The FT said the EU probe probably started at the same time as Justice Department's.

Commission spokesman Ricardo Cardoso declined to comment. The EU competition watchdog has handed down billion-euro fines to several banks for rigging several financial benchmarks. (Reporting by Foo Yun Chee; Editing by Adrian Croft, Larry King)