Investors are avoiding European bank bonds because of concerns that the debt of some countries, including Greece and Spain, held by the lenders will significantly decline in value. Sales of bank bonds cooled last month to the lowest levels since the 2008 collapse of Lehman Bros, and banks are depositing record funds with the European Central Bank because they are wary of lending to one another. "There is a lot of mistrust," said Christoph Rieger, co-head of fixed-income strategy at Commerzbank. "Banks are trading with the ECB rather than with each other."

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