Financial Markets Are Showing Signs Of Normalizing: BIS

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Financial markets are showing signs of normalizing, as risk tolerance edged further upwards and risk premia receded, the Bank for International Settlements said Monday.

"In interbank money markets, key spreads narrowed to levels not seen since the beginning of 2008, and in some cases even further. Improvements were also visible in credit markets, although important segments continued to rely on central bank support," the Basel, Switzerland-based BIS said in its quarterly review.

The LIBOR/OIS spread, an indicator for the level of stress in the money market, widened sharply after the collapse of Lehman Brothers in September 2008.

In the case of US rates, the spread dropped to the lowest level since the outbreak of the financial crisis in mid-2007, the bank for central banks said.

Despite uncertainty about the pace of economic recovery, investors remained cautiously optimistic in the period between end-May and early September 2009, the report added.

Financial markets are showing signs of normalizing, as risk tolerance edged further upwards and risk premia receded, the Bank for International Settlements said Monday. (Market News Provided by RTTNews)