With interest rates unleashed from their recent trading range, and amid a mini-panic over the end to cheap central bank liquidity, investors in the credit markets are seeking ways to mitigate losses, which are eating into the record returns seen earlier this year.

Japanese prime minister Shinzo Abe has promised structural reforms, alongside monetary action, to drag the country out of decades of slow growth. The jury is out on whether he is making sufficient progress.

Risk models have come under the spotlight as markets fear that portfolios are at risk of interest-rate volatility amid swings in government bond markets. Concerns are growing that financial institutions and institutional accounts might be over-exposed to large paper losses – but the devil, as ever, is in the details.

Talk of a bond market sell-off has increased after a jump in US Treasury yields in recent days, but many investors are convinced that, with inflation and unemployment off target, the Federal Reserve will continue to buttress the market.

Fears are growing that China’s elevated debt levels, diminishing returns from its bank-financed investment-led growth strategy and slowing GDP prospects mean a credit crisis is in the making.

The International Swaps and Derivatives Association (ISDA) is attempting to bring the credit default swap (CDS) market into the modern era of government intervention in credit markets with its most profound consultation paper in a decade as bank bail-in risks rise.

The ECB has achieved some successes over the past two years. Its liquidity injections stopped the bleeding in bank deposits, narrowed the gap in core-periphery bond yields and made markets more resilient to shocks such as Cyprus or Italy’s inconclusive elections.

Optimism around the UK economy has been picking up lately: improved industrial production, a rebound for sterling, even the outgoing Bank of England governor is sounding a little more upbeat. But these tender green shoots of recovery are deceptive. They will probably turn out to be weeds.

For all the rhetoric about the importance of international cooperation in banking oversight, a lack of trust, regulatory fragmentation and a complex pipeline of divergent policy measures, particularly at the national level, are preventing the creation of a workable cross-border bank resolution system, observers warn.

Banks and businesses are being forced to transform how they report liquidity – regulators want them to understand their balances on an intraday basis instead of using end-of-day forecasts. This requires fundamental change but the insight it provides will enable banks to increase controls, decrease operational risk, reduce buffer requirements and offer better services.