Cash bonds take a different track
As anyone on the financial markets rollercoaster will know, predicting the future path of your investments is next to impossible, particularly in the current economic climate. But a dislocation has appeared between the equity/CDS markets, which are pricing in a relatively normal path to recovery, and the cash bond market, which is pricing in a major downturn. Laurence Neville looks at the reasons for this discrepancy
Is the worst of the credit crunch over? The equity, CDS and cash bond markets give different answers. For most sectors, the equity and CDS markets appear to have priced in a rapid economic recovery and limited defaults. By contrast, the cash bond market sees financial Armageddon at the door. How has this discrepancy come about? And which view is correct?
The equity markets have enjoyed a strong run since early March, with both the FTSE and the Dow Jones gaining as much as 10% from their lows
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