The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.

Bond Outlook July 31st

Credit markets remain more alert to dangers of CDOs and the credit squeeze than equity markets, but if the tail strikes, too, watch out! We mean carry-trade unwind.

The dichotomy between bond and equity markets timidly reasserted itself at the beginning of this week as relative calm returned to equity markets, while credit markets worsened, except for top quality bonds. Another dichotomy is now developing: that of sources of (funds) liquidity. Banks (and credit instruments organised through them) are a much reduced source of credit, while surplus countries, many with their sovereign wealth funds, still have massive liquidity available.

Consider first the banks:

  • The securities left on their books tie up their own equity capital and reduce lending capacity

  • The pipeline of LBOs had dried up with some 40 planned LBOs pulled during the current crisis, both because the costs to the would-be borrower have gone up and also because banks have every reason to doubt that they can syndicate the loans

Then consider the sovereign wealth funds:

  • Their first forays into equity markets must have hurt them, but they are so rich that they must be metaphorically shrugging their shoulders. The one thing they cannot do is retreat to Treasuries

  • If China and Dubai are anything to go by, their strategy is to take long-term minority positions where they can influence performance and/or acquire knowledge to “take home” (example: Barclays)

These two sources of liquidity are very different and the second can scarcely make up for the first drying up.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree