Global insurance market report [gimar]

1.2 
FINANCIAL MARKETS
Globally, monetary policy has focused on 
reducing interest rates to address global trade
tensions and declining economic growth. 
However, financial markets remain vulnerable to a
sudden tightening of financial conditions, 
materialising through a sharp repricing of risk,
escalating trade tensions or ongoing slow growth. 
These triggers could unearth vulnerabilities that 
built up during the low-yield environment since 
the 2007–2008 financial crisis.
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In its 2019 Global 
Financial Stability Report, the IMF estimated 
that corporate debt has increased. Notably, the 
stock of BBB-rated bonds has quadrupled and 
speculative-grade debt has doubled in the US 
and the euro area since the financial crisis. This 
may lead to credit risk repricing, which in turn will 
affect lending and borrowing capacity.
On 31 July 2019, the Federal Reserve cut its 
interest rate for the first time since 2008, from
2.25% to 2%, as a precautionary measure against 
ongoing global trade tensions, subdued global 
growth and volatility in the euro area.
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In addition, 
both the European Central Bank
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and the Bank 
of Japan
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announced that they will carry on with 
their expansionary monetary policy through their 
asset-purchase programmes. Several commercial 
banks have started to offer negative interest rates 
to their wealthier clients in order to pass on part 
of the low and negative interest rates offered 
by central banks. A “low-for-long” interest rate 
environment
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is setting in, with some jurisdictions 
observing negative rates for various maturities.
In the 2019 Annual Economic Report, the BIS 
discusses how volatility in financial markets
reappeared towards the end of 2018. The US 
stock market declined, mainly due to lower 
growth expectations and earnings uncertainty. 
Previous expectations of further monetary
policy tightening may have also contributed
to these trends.
Generally speaking, with notable exceptions that 
can be observed in the figures below, housing 
prices maintained their upward momentum of 
previous years. Trends appear to be fairly stable 
and are mainly shaped by the downward pressure 
created by the further decrease in long-term 
interest rates. As a result, several supervisors 
and international organisations, such as the 
European Systemic Risk Board (ESRB),
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have 
warned against a potential overheating of certain 
residential real estate markets and the risks of 
high or rising household indebtedness.
Figure 1.1b:
Market-based inflation expectations for selected emerging market economies, 
break-even rates of 10-year bonds (%, February 2014 – July 2019)
Source: Bloomberg

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