The fixed-income market has faced its share of challenges over the past six years but the credit markets have repeatedly outperformed expectations, Financial News reports.
The dollar hit a low against the euro last week amid fears that the American sub-prime property debacle was setting off a broader credit crunch.
That was prompted by rating agency Standard & Poor’s decision to place the ratings of $12 billion of sub-prime mortgage bonds on review for possible downgrade and followed the closure of five high-profile investment funds in connection with sub-prime losses, including Dillon Read Capital Management and a pair of Bear Stearns’ structured credit vehicles.
While predictions of a meltdown in the financial markets are growing in the media and among some investors, many analysts and bankers believe fears are exaggerated.
“Losses in the tens of billions of dollars are clearly a huge problem, but we do not think they are a systemic one,” says Credit Suisse analysts Jagdeep Kalsi, Ivan Vatchkov and Guillaume Tiberghien, in a report this month.
According to the report, banks are unlikely to bear a substantial part of the losses and the Swiss bank called the risks to their revenues “not immaterial, but hardly consequential”.
While bankers and analysts believe there is a great deal to be worried about, they say the fundamental strength of the credit markets could allow them to overcome its latest challenge.