Credit market is now overshooting on the way up

30 Apr 2008

The remarkable recovery in US and European credit markets in the past month is not justifiable by any good news or fundamental change. Investors and dealers are now treating the glass as half full rather than half empty — but they should watch out. There is plenty more bad news to come, such as Alt-A defaults, and CDS indices and bond prices could turn bearish again.

Over the last few months, the US and European bond markets have resembled a pair of bipolar patients on day release without medication.

Plunged into depression a few short weeks ago, they now gambol gaily like spring lambs.

If a dose of realism was called for during the worst depths ...

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