Rising worries over a global recession, the unwinding of trades made by hedge funds with borrowed money and instability in emerging economies combined to trigger forced selling in loan, bond and credit derivatives markets.
The sell-off came amid a broad flight from risk that is hitting equity markets worldwide and sending measures of market volatiliy to elevated levels.
“The repricing of risk has been nothing short of savage, highlighting how the excessive liquidity conditions in the 2003-2007 era were underwriting risk assets and the withdrawal of the liquidity may now leave a mark on credit for years to come,” said Suki Mann, strategist at SG CIB.
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