In this paper we show that financial frictions disrupt the timing and magnitude of price responses to the flow of news about the prospects of a future sovereign debt crisis. With complete markets prices jump each time news arrives. However, when short selling of government bonds is restricted, pessimistic investors lend to optimists instead and the response of prices is delayed. In early periods the response of prices is indiscernibly different from zero. When a crisis is imminent though prices respond to bad news in a dramatic way.