MNI POLICY: BIS: Market Infrastructure Resilient Amid Slump

By Evan Ryser

     (MNI) - The Bank for International Settlements said on Sunday that market

infrastructure has held firm amid selloffs linked to coronavirus risk, and the

drops have been  more dramatic because of a surge in risk-taking in the months

beforehand. 

     "The post-crisis regulatory reforms aimed at strengthening financial

institutions are bearing fruit," Claudio Borio, head of the monetary and

economic department, wrote in a quarterly report. "Financial markets will

continue to dance to the tune of news about the virus, and of the authorities'

response."

     The correction has been more dramatic because of the "frothy markets" that

emerged around October on signs of progress towards a U.S.-China trade deal, the

BIS said. That made markets more vulnerable to risk-off trades with China's

coronavirus outbreak and its spread to South Korea, Iran and Italy.  

     Corporate credit markets appear "fairly resilient in the face of the large

stock market correction," the BIS report said. The U.S. credit risk premium

moved to the 45th percentile of its historical distribution and in Europe it

returned to the 30th percentile, "levels that had prevailed before the onset of

the risk-on phase."

     Lending standards are unlikely to be relaxed in the near term, the BIS

said, even as the volume of leveraged loans in the U.S. and Europe in January

doubled compared with the year earlier, the BIS quarterly report said.

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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