Central banks are preparing for the next crash. Sadly nobody else is: The underlying argument of the report is that “near-term risks to financial stability continue to decline”, but “medium-term vulnerabilities are rising”. The return of global economic growth, combined with comfortable monetary and financial conditions, together with sluggish inflation, strengthens investors’ reach for yield and appetite for risk.
With market and credit risk premiums at decade-low levels, asset valuations are vulnerable to a “decompression” of risk premiums - in blunter words, a crash.
With market and credit risk premiums at decade-low levels, asset valuations are vulnerable to a “decompression” of risk premiums - in blunter words, a crash.