Global Markets Are Showing Signs of Stress Amid Tightening Financial Conditions

Localized areas of the global financial system are increasingly showing signs of distress, raising the risk of more severe, even systemic financial market dislocation and economic disruption. In recent weeks, several developments around the world indicate that the risk of financial crises is rising. In the United Kingdom, significant volatility in government bond markets almost drove several insurance companies into default in late September and early October. Had it not been for the Bank of England's intervention, U.K. financial markets might have suffered even more severe dislocation. In China, property prices are under pressure against the backdrop of financial difficulties of real estate developers. And in the United States, equity markets have sold off sharply since the beginning of the year, failing 25%. Important asset classes, such as U.S. high-yield bonds and leveraged loans, have also come under market pressure. In the global banking sector, the spreads of credit default...