"While risk appetites may conceivably revert back to their first half 2007 apex, investor sentiment has clearly anticipated some re-pricing for a number of months," says Richard Hunter, Regional Credit Officer for Fitch Ratings in Europe.
Fundamentals, including interest rates and global demand, for both investment-grade corporate and financial sectors, have not dramatically changed in recent weeks. In recent years, however, leverage across the financial markets has gradually increased, in some areas more than others.
Market stress has varied across sectors. Major corporations have retained access to the capital markets over recent weeks. Issuers withdrawing bond offerings have done so primarily based on pricing rather than placement concerns. Real interest rates and commercial bank lending surveys (including the July 2007 eurozone ECB lending survey) continue to indicate a broadly accommodating environment for financing.
At the same time, appetite for structured finance risk has been subdued. Asset-backed commercial paper ("ABCP") markets have seen some disruption to pricing levels. In the US in particular, substantial volumes of loan maturities in the leveraged corporate sector represent a near-term test of the ability of risk appetites to bounce back. There is also evidence in the US of caution with regards to both consumer and corporate lending.
