2022 was a year when the dog didn’t bark. There were many significant events but from the perspective of finance and the markets, what is perhaps most interesting is what didn’t happen.
We have after all just lived through the end of a 30-year bull market in bonds, as central banks around the world adjusted to a new era of inflation by raising interest rates at the fastest pace since the 1980s. The 10-year US Treasury yield, to take the most obvious example, went from 1.521% to 4.338% between January and October.
And in the process we have seen the end of quantitative easing in most countries and the start of quantitative tightening in some.
We’ve also seen Russia’s horrendous invasion of Ukraine, massive blockages in supply chains, a lingering pandemic, a collapse in crypto currencies and tech stocks, ballooning debt levels across much of the world – not to mention the UK’s determined effort to shoot itself in its remaining foot.
And yet despite the many apocalyptic warnings sounded across those 30 years about what might happen when the secular bond bull market came to an end – and IFR contributed its fair share – there has been surprisingly little damage to the finance sector (at least so far).
The banking industry’s woes were measured in (much) lower profits and job cuts rather than systematic threats and existential crises. Even the one bank that found itself in something of a doom-loop has a plan to get out of it, though whether a reborn CSFB will work is another question.
That was all the more impressive considering that 2022’s bust came after 2021’s exuberance. Issuance numbers tell the story. Global deal volumes in 2022 dropped 18% in DCM, 11% in loans (with a much bigger drop in the lucrative area of leveraged finance) and an extraordinary 62% in ECM.
The resilience shown by the industry is a testament to the lessons learned since the 2007–08 financial crisis – and the eurozone crisis that followed – as regulators and the industry put in place safeguards (most obviously much higher capital levels) that shored up the whole financial system.
Some may quibble with the details – there is certainly room for incremental improvements – but this was one occasion when officialdom got it pretty much right. And we all have cause to be grateful.
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