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Financial conditions remain very tight after Monday’s stock-market rout
Borrowers need to see several factors align before the sudden extreme tightening of financial conditions eases significantly, says FHN Financial (Bloomberg)
The recent plunge in bond yields should help ease borrowing costs for businesses and households after financial conditions significantly tightened in recent days.
Stocks already have recouped some of Monday’s sharp losses and bond yields have perked back up, helped along by Japan’s central bank signaling overnight that it plans to hold off on future rate hikes in a jittery market.
“The yen weakened, placing less pressure on investors to unwind carry trades immediately,” Will Compernolle, macro strategist at FHN Financial wrote, in a Wednesday client note.
But while financial conditions were easing back from their tightest levels since last year’s regional banking crisis, “lower bond yields are not the only part of the picture,” Compernolle wrote, adding that stock valuations, volatility and credit spreads also impact how easily firms can borrow.
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