Central bank tightening: what could break?
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Liquidity Problems in Financial Markets in Emerging Markets
Constancio sees several things that could potentially break in the financial system during this policy-tightening cycle. There are several potential events or triggers of such instability, he says. liquidity problems in sovereign bonds is a potential source of instability," Constancio adds. The second one has to do with high yield bonds and also leverage loans, because the increases in interest rates and recession may create problems of default on those types of borrowings.
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