Kaupthing Bank of Iceland failed to make interest payments on its “SamuraI” bonds – the yen denominated debt the bank raised in 2006 before the credit crisis blew up.

Just before the summer, banks around the world flocked to the Japanese debt market to raise cash as credit conditions tightened in their own countries. Banks in the UK, United States, India, Australia and the European Union were all voracious issuers of samurai bonds, although that process screeched to a halt in September after the collapse of Lehman Brothers.

The action on the samurai bond market is increasingly viewed by analysts as a proxy for overall credit worthiness of troubled financial houses.

Kaupthing, which missed its 1.8 per cent coupon obligation became the first European bank to default on its samurai debt payments.

American-based Lehman did so last month and other troubled issuers are expected to encounter severe difficulties meeting their obligations to bond holders.

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