Podcast Center
Video Center
Webcasts
Resource Center
Events
June 19, 2006 at 08:00 PM
BASEL, Switzerland (HedgeWorld.com)–The Bank for International Settlements’ June 2006 Quarterly Review has underlined what it terms a “retreat from risky assets”, which it says began to take hold in early May. The authors noted that this followed a general rise in yields on government bonds. Bond prices had continued to fall up to mid-May, a reflection on the one hand of investor concerns about higher inflation, but also an indication of expectations that the global economy could continue to grow at a steady pace.
The sharp downturn in the exchange rate of the dollar and the continued tightening of spreads on low grade corporate and emerging market debt did little to dent investor enthusiasm for equities and commodities. These asset classes continued to appreciate until mid-May, when the rally came to a sudden end on concerns that the broad-based rise had been overdone.
Since mid-May, emerging equities markets have suffered the sharpest downturn, but other equities markets too have seen a sharp sell off, notes the report. Investors have rushed to rebalance portfolios in favor of government bonds. According to the BIS review, this flight to quality is a reflection of higher risk aversion among investors rather than representing a general reassessment of fundamentals.
World-wide, international debt issuance increased by a gross 24% to $1.2 trillion in the first quarter of 2006. On a net basis, eliminating debt that had matured during the period, issuance rose 9% to $622 billion. The research notes that these are both historic peaks, suggesting a favorable financial environment and improving access for many borrowers to international credit markets. US entities and corporate issuers were the main contributors to the growth, while issues in Japan for the quarter exceeded total issuance for the six previous quarters combined. Net borrowing in the euro area also grew, but at a far slower pace.
In emerging markets, borrowing increased by 19% to just under $60 billion, and net borrowing rose by 33% to 42 billion, both record levels. The report attributes these increases to a combination of improved fundamentals, but also to international investors broadening their horizons in the search for yield.
