Future financial instability

 Investors and institutions have been dangerously overleveraged and “thinking that rates will stay low forever”.

Four places that investors (and regulators) should now watch closely.

One is the state of open-ended investment funds, or vehicles that let investors redeem assets at will. This sector has swelled to contain $41tn of assets.

A second issue is government bonds. Liquidity increasingly tends to evaporate at moments of stress. 

 A third issue is housing. Prices kept rising earlier this year, even after monetary tightening started. A stunning surge in the 30-year fixed US mortgage rate in America to 6.75 per cent, its highest rate since 2006

A fourth issue is private capital.

Investors should brace themselves for more surprises, unless, of course, next week’s IMF meeting in Washington reveals that central banks are about to perform (yet another) U-turn.

Gillian Tett FT 6 October 2022

https://www.ft.com/content/5fb85f38-dcdc-4550-a164-2a3fdd7ae612