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WITH A SPRING in the step of the international capital markets and some green shoots of recovery in the deal-printing securitization business, you could, with one eye closed, conclude that a recovery is taking place in the global financial markets. Open the other eye and the picture is much more mixed. The funnelling of trillions of taxpayer dollars into the banking system has achieved its initial goal of avoiding systemic failure and stabilizing the markets but its second-order effects have created an artificial repricing of risk assets across the broader asset class of fixed income. Many say that distorts the true nature of the recovery, or lack of it, in the banking system and the distressed assets it still contains.
"Whether it be good assets or bad the result of quantitative easing, a zero rates policy and a multitude of government-backed asset programmes is that everything has repriced in relative terms," says Ben Ashby, head of European credit research at HSBC in London. "As a result, across fixed income as a whole, everything looks more profitable. Whether these prove to be good assets or indeed even lasting profits is another matter.