Global financial markets are facing tightening conditions and high debt levels that could test financial sector resilience. Major developments include rising commodity prices contributing to higher inflation, tightening monetary policies leading to higher bond yields, and substantial corrections in equity prices. These conditions are spreading credit risk across markets, with deteriorating conditions in corporate bond, real estate, and bank markets. Going forward, refinancing risks may increase for highly indebted sovereigns and corporations. Tightening financial conditions could also increase risks for leveraged capital markets and household debtors, posing challenges for financial system resilience.

1. GLOBAL FINANCIAL MARKETS
Tightening financial conditions and high debt levels
could test financial sector resilience
Committee on Financial Markets, 6 October 2022
OECD Directorate for Financial and Enterprise Affairs

2. Committee on Financial Markets
• The Committee on Financial Markets’ overarching objective is to promote efficient,
open, stable and sound financial systems, based on high levels of transparency,
confidence, and integrity, so as to contribute to sustainable and inclusive growth.
• The Committee’s core method to support this objective is through in-depth and
proactive surveillance of financial developments and analysis of their impact on
economic growth and stability.
• This presentation reflects the Committee’s current surveillance of global financial
markets and risk transmission mechanisms amid market conditions characterised
by elevated inflation, slowing global growth, tightening monetary policy and high
geopolitical risks.
2

3. 3
Overview
Major financial market developments
Spillovers of credit risk across markets
Credit risk outlook in global markets’
1
2
3

4. 1. MAJOR FINANCIAL MARKET
DEVELOPMENTS
4

5. Accelerating growth in commodity prices contributes to
higher short-term inflation expectations
Elevated and volatile commodity prices are
contributing to higher inflation and slower
progress towards the global energy transition.
5
Inflation expectations remain relatively steady
at close to 2%, yet short-term inflation
expectations remain elevated in US and EU.
Significant increase and greater
volatility in food and energy prices in 2022
Short-term market inflation expectations
higher than long-term indicators
Source: Refinitiv, OECD calculations. Note: Market expected inflation is measured using 2-year and 10-year US dollar and Euro inflation
linked swap rates.
Source: Refinitiv, OECD calculations.
0
200
400
600
800
1000
1200
1400
1600
1800
2000
50
100
150
200
250
300
Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22
Price index (100=Jan-
2019)
Price index (100=Jan-
2019)
Food commodities Brent Crude
US WTI Oil European natural gas (RHS)
European electricity (RHS)
0.8
1.3
1.8
2.3
2.8
3.3
3.8
4.3
4.8
5.3
Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22
%
United States 2-year Euro Area 2-year
United States 5yr-5yr Euro Area 5yr-5yr

6. As monetary policies tighten investors expect further increases in
policy rates in major markets
Many central banks have increased their policy
rates in 2021/22, yet monetary tightening may
slow or end in EMEs as they balance already
elevate policy rates and growth concerns.
6
Interest rate hikes are expected to be more assertive
in the US than in the Euro Area, where elevated
commodity prices and possible energy shortages
could boost inflation but worsen growth outlook.
Policy rates in selected advanced and
emerging markets
Rising market-implied
expected policy rates in the Euro Area and the US
Source: Bank for International Settlements. Note: Market-implied expectations of policy rates are measured using zero start by 12 or 24 months
forward US dollar and Euro LIBOR rates. Policy rates are as of mid-September 2022.
Source: Refinitiv.
-1
4
9
14
19
Argentina
Brazil
Hungary
Chile
Poland
Colombia
Peru
Turkey
Mexico
Russia
Romania
South
Africa
Saudi
Arabia
Serbia
North
Macedonia
Philippines
India
Malaysia
Canada
United
States
United
Kingdom
Switzerland
Israel
Iceland
Korea
Euro
area
Australia
Czech
Republic
Norway
Hong
Kong
Denmark
New
Zealand
Sweden
July 2022 Lower policy rate recorded in 2020
60
36
-1
0
1
2
3
4
5
6
Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22
%
United States 1-year United States 2-year
Euro Area 1-year Euro Area 2-year
ECB main refinancing operations rate US federal funds rate

7. Tightening monetary policies have led to rising yields on both public and
private sector debt, which may indicate recession concerns
Yields have climbed in 2022, across both
sovereign and investment-grade corporate debt
(both fixed and floating).
7
Inverted yield curve, particularly in the United
States, indicates investors’ concerns about a
recession.
Rising yields on both public and
private sector debt
10-year versus 2-year sovereign yield curve
in selected advanced markets
Note: Yields on investment-grade corporate and advanced sovereign bonds are derived from ICE
BofAM benchmarks.
Source: Bank for International Settlements.
Source: Refinitiv, OECD calculations.
0
1
2
3
4
5
6
7
8
9
Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22
%
US corporate investment-grade Euro corporate investment-grade
EM corporate investment-grade Advanced markets sovereign
LIBOR USD 3-month
-0.6
-0.1
0.4
0.9
1.4
Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22
%
United States United Kingdom Euro Area Japan

8. Substantial equity price corrections in interest rate sensitive sectors and
emerging markets, amid deteriorating earnings
Rising interest rates have led to a substantial
equity price corrections in interest rate sensitive
sectors, including technology, consumer
discretionary sectors and emerging markets.
8
Challenging economic conditions have
contributed to declining corporate earnings
globally and downward revisions of earnings
forecasts.
Global decline in equity prices in 2022 Subdued or declining corporate earnings
globally in 2022
Source: Refinitiv, OECD calculations.
Source: Refinitiv, OECD calculations.
-10
0
10
20
30
40
50
60
Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022
q-o-q change (%)
United States Advanced Europe (ex UK) United Kingdom Japan EMEs
63
69
75
81
87
93
99
105
Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22
Price index (100=Jan-
2022)
NASDAQ S&P 500 (ex technology) STOXX ex. UK
FTSE All Shares NIKKEI 225 SHANGHAI SE A
MSCI EM

9. Deteriorating financial conditions, as reflected in declining liquidity in
particular bond market segments and speculative-rated bond issuance
Liquidity is declining in US Treasury and
investment-grade corporate bond markets as the
Federal Reserve reduces the size of its balance
sheet.
9
Speculative-rated corporate bond issuance have
declined sharply in 2022 amid rising investors’
concerns about lower global growth, elevated
inflation and quality of leveraged corporate
credit.
Deteriorating US sovereign and corporate
bond market liquidity distress indicators
Declining issuance of
speculative-rated corporate debt
Note: US Treasury and US corporate bond markets liquidity distress indices indicate the
state of liquidity conditions on these markets.
Source: Bloomberg, Federal Reserve Bank of New-York.
Source: ICMA, Refinitiv, OECD calculations.
0.0
0.5
1.0
1.5
2.0
2.5
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22
Basis points
Basis points
Corporate investment-grade Corporate speculative-rated
Sovereign (RHS)
0
100
200
300
400
500
600
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2020 2021 2022
USD, bn
Bonds Loans

10. 2. SPILLOVERS OF CREDIT RISK
ACROSS MARKETS
10

11. Corporate credit market conditions have deteriorated amid debt
sustainability concerns for leveraged firms
Speculative-rated corporate bond spreads
widened amid debt sustainability concerns due to
rising cost of debt and declining actual and
expected corporate earnings.
11
Higher credit default swaps reflect investors’
concerns over corporate credit risk and the
impacts of energy shortages on profitability,
particularly for European corporates.
Increase in speculative-rated
corporate bond spreads in 2022
Rising corporate credit default swaps in the
US and EU
Note: Option-adjusted spreads of speculative-rated corporate bond indices in selected major markets
derived from ICE BofAM benchmarks.
Source: Refinitiv.
Note: Corporate CDS indices in selected major markets derived from Refinitiv sectoral indices.
Source: Refinitiv, OECD calculations.
200
400
600
800
1000
1200
1400
Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22
Basis points
US High-Yield Euro High-Yield EMEs corporate High-Yield
70
90
110
130
150
170
190
210
230
250
270
Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21 Jan-22 May-22 Sep-22
Basis points
United States Europe

12. Spillovers affecting sovereign credit markets with rising spreads and
volatility
Sovereign bond spreads widened for some
indebted issuers with lower fiscal space amid
monetary policy tightening.
12
Elevated volatility in US Treasury market
reflects investor concerns about persisting
structural vulnerabilities, which may be
worsened by monetary policy tightening.
Significant rise in sovereign bond spreads
in some European economies
Rising sovereign bond volatility to levels that
exceed COVID-19 peaks
Note: 10-year sovereign bond spreads between selected European economies and German bund.
Source: Refinitiv, OECD calculations.
Note: MOVE and VIX measures market expectation of near term volatility on US equity and Treasury
markets. Treasury term premium is derived from the Adrian, Crump, and Moench (ACM) model.
Source: Refinitiv, OECD calculations.
0
0.5
1
1.5
2
2.5
3
Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22
%
Italy Greece Spain Portugal France Netherlands
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
2.5
3
0
20
40
60
80
100
120
140
160
Jan-20 Jun-20 Nov-20 Apr-21 Sep-21 Feb-22 Jul-22
%
Basis points
MOVE VIX 10-year Treasury term premium (RHS)

13. Weakening conditions in real estate finance markets amid deteriorated
credit quality of borrowers in commercial and residential sectors
Rising risks in the corporate sector and the
contraction of Federal Reserve’s balance sheet
have resulted in declining valuations of REITs
and rising credit spreads for non-agency CMBS
and RMBS.
13
Strained conditions for Chinese real estate
developers amid sharp decline in property sales
and a cascading liquidity crisis are increasing
risks in multiple sectors, including for financial
sector resilience.
Weakening conditions in
real estate finance markets
Significant exposure of Chinese AMCs to
real estate assets
Source: Refinitiv, OECD calculations.
Note: AMC stands for asset management company.
Source: : AMC annual reports, Refinitiv, OECD calculations
0
10
20
30
40
50
60
% of total assets
under management
China Cinda Asset Management China Huarong Asset Management
180
380
580
780
980
1180
1380
50
60
70
80
90
100
110
120
Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22
Basis points
Price index
(100=Jan-2022)
European REITs
US REITs
Hang Seng Mainland property and construction
US MBS Agency spread (RHS)
US non-agency CMBS spread (RHS)

14. Spillovers have also affected banks, with additional challenges arising
from elevated inflation and higher interest rates
Equity valuations of banks have declined in
major advanced banking markets in 2022 amid
tightening monetary conditions.
14
While banks can absorb substantial losses,
inflation and higher interest rates could increase
their market and credit losses with negative
impacts on their credit intermediation capacity.
Declining valuations of banks in selected
major advanced banking markets in 2022
Substantial bank capital buffer in selected
advanced banking markets
Source: Refinitiv, OECD calculations. Note: AMC stands for asset management company.
Source: : AMC annual reports, Refinitiv, OECD calculations
0
2
4
6
8
10
12
14
16
18
20
United Kingdom Euro Area Canada Australia United States Japan
%
0.7
0.8
0.9
1
1.1
1.2
1.3
1.4
1.5
1.6
0.4
0.5
0.6
0.7
0.8
0.9
1
Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22
Price-to-book value
ratio
Price-to-book value
ratio
Europe (incl. UK) Asia Pacific United States (RHS)

15. 3. CREDIT RISK OUTLOOK IN
GLOBAL MARKETS
15

16. Refinancing risks may increase for highly indebted sovereign issuers in
OECD countries amid deteriorating credit conditions
Longer average-term-to-maturity implies a lower
pass-through of interest rate changes to
government debt-servicing costs and enhanced
fiscal resilience.
16
Elevated debt redemption profiles in many
OECD economies may cause debt servicing
pressures for governments facing both sharp
increases in yields and large financing needs.
Lengthened average-term-to-maturity
in selected OECD economies
Redemptions of central government
marketable debt in OECD country groupings
Source: OECD Sovereign Borrowing Outlook (2022). Source: OECD Sovereign Borrowing Outlook (2022).
0
5
10
15
20
25
30
35
40
45
50
OECD G7 Euro 17 Emerging
% of total debt
stock
2022 2023 2024
0
2
4
6
8
10
12
14
16
Years
2007 2020 2021

17. Tightening financial conditions could increase risks for leveraged
corporate capital markets with negative effects to financial resilience
Corporate debt servicing ratios are expected to
rise as financial conditions tighten and earnings
decline, which may trigger defaults.
17
Oscillating private equity issuance demonstrates
the sensitivity of private markets to shifting
investor sentiment, as elevated leveraged
private deals and rising non-bank financing
could increase risks to financial resilience.
US and European corporate speculative-grade
default rate could double to 3% by Q1 2023
Decline in private equity issuance in Q1 2022
Note: Value in 2023 are forecasts.
Source: Source: S&P Global Ratings.
Source: : Refinitiv, OECD calculations.
0
100
200
300
400
500
600
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2020 2021 2022
USD, bn
United States (buyout) Europe (buyout) United States (venture cap.) Europe (venture cap.)
0
2
4
6
8
10
12
14
16
18
%
United States Europe Emerging markets

18. Rising financing costs for households may cause deteriorating credit
quality and losses for mortgage lenders and RMBS
Rising delinquency rates, particularly in US auto
and credit card loans, suggest that economic
strain is building for lower-income households.
18
Adjustable-rate mortgage contracts are prone to a
higher probability of default amid rising interest
rate, raising concerns for RMBS and mortgage
lenders where housing prices and household
indebtedness are elevated.
Rising US delinquent consumer loans Rising mortgage lending
rates in many OECD economies in Q1 2022
Source: Refinitiv, OECD calculations. Source: : Source: European Mortgage Federation, Quarterly Review of European Mortgage
Markets.
0
2
4
6
8
10
12
14
03:Q1 05:Q1 07:Q1 09:Q1 11:Q1 13:Q1 15:Q1 17:Q1 19:Q1 21:Q1
%
Auto Credit Card Mortgage Other consumer loans
0
20
40
60
80
100
120
0
1
2
3
4
5
6
7
% of total
issuance
%
March 2021
March 2022
Share of adjustable-rates mortgages issued (2020, RHS)

19. Elevated commodity prices and tighter financial conditions amid elevated
indebtedness could accelerate debt distress in some EMEs
Debt accumulation and depreciating currencies
could increase refinancing risk and limit fiscal
spending to help vulnerable households and
businesses face rising food and energy costs.
19
Greater financing from NBFIs could make
portfolio flows more susceptible to global
financial conditions and aggravate existing
vulnerabilities from high non-financial sector
debt and dependence on external/foreign
currency borrowing.
GDP and sovereign bond spread of debt-
distressed EMEs
Rising share of EMEs’
international debt securities held by non-banks
Note: An EM issuer is considered in distress territory if sovereign bond option adjusted spread
exceeds 1000 basis points.
Source: Refinitiv, IMF World Economic Outlook database, OECD calculations.
Source: : Source: European Mortgage Federation, Quarterly Review of European Mortgage
Markets.
50
55
60
65
70
75
2005 2007 2009 2011 2013 2015 2017 2019 2021
% of total
outstanding amount
of international debt
securities
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
0
200
400
600
800
1000
1200
1400
1600
1800
2000
Basis points
GDP (USD, bn)
GDP (2021; USD, bn) Sovereign bond spread (October 2022)

20. Deteriorating financial and economic conditions combined with high
indebtedness could test vulnerabilities in the global financial system
20
Sovereign refinancing needs
Corporate debt
sustainability concerns
Household debt
sustainability concerns
EME risks are rising
Rising inflation pressures and tightening monetary conditions are raising
refinancing risk in some OECD economies.
Rising refinancing risk on the back of elevated indebtedness and
weakening economic prospects for leveraged issuers may result in higher
losses for a range of products and intermediaries.
Elevated indebtedness combined with higher financing costs and possible
decline in housing prices could erode credit quality and trigger losses for
mortgage lenders and RMBS.
Tighter financial conditions amid elevated indebtedness could
accelerate debt distress in some emerging economies.
A broad-based rise in credit losses could trigger sharp valuation corrections and test the
resilience of financial intermediaries with negative impacts on sustained credit
intermediation and economic growth.

21. .
Supporting financial markets in the post-COVID 19
environment
Financial markets policy guidance on the OECD Financial markets webpage:
 Financial Markets & Intermediation: surveillance and analysis of markets and
intermediation to assess frameworks and policies effectively contributing to economic growth
 FinTech & Digitalisation of Finance: how the adoption of innovative technologies in
finance can contribute to economic growth
 Sustainable Finance: essential to the long-term value that underpins inclusive growth
 Public debt management – increased borrowing needs and market volatility
Link to Recent OECD publications:
 OECD Economic Outlook, Interim Report September 2022
 Real estate and climate transition
 Institutionalisation of crypto-assets and DeFi–TradFi interconnectedness
 ESG rating and climate transition
 OECD debt transparency initiative