Global Financial Conditions Looking to Remain Stable This Year

Risks to global financial conditions are not significant, economic growth will be robust and asset quality is expected to remain stable this year, leading to favorable bond issuance and credit for 2018.
Any fall in asset prices or fallout from withdrawn quantitative easing is also overestimated, said Moody’s Investors Service in a new report.

"Global financial market risks remain moderate, with little change in underlying pressures over the past six months," said Colin Ellis, Moody's managing director of credit strategy. "Our assessment remains broadly unchanged in the continued absence of significant macroeconomic, financial and political shocks."

Geopolitical risks stemming from the Korean peninsula and the Middle East are ever present, while substantial shifts in U.S. economic policy also remains as a potential risk to the generally stable global banking sector, Moody’s said.

“Moody's expects policy rates to peak at lower levels than seen in the pre-crisis period, which is consistent with long-term rates only partly unwinding past declines,” the report stated. “Some of the observed decline in benchmark long-term yields is likely to be permanent.”

Corporate bond yields are low, and in line with benchmark rates, while credit spreads for high-yield bonds are tighter, but not mismatched with Moody’s ratings for the high-yield issuers.

Globally, equity markets are relatively even-keeled, with the U.S. being an exception as price-earnings ratios look over-valued in some situations, analysts said.

"Based on our analysis, asset prices do not generally appear to be inflated on a global basis," Ellis said. "Furthermore, QE may not have blown big asset bubbles, and risks from falling asset prices as and when QE is withdrawn are overestimated."

– Nicholas Stern, managing editor

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