Credit Markets Broaden View of Risk and Portfolio Diversification

October 31, 2022

As global monetary policy tightens, corporate treasury teams should be re-evaluating their risk management profile to reduce their exposure to risky customer accounts.

By Ranjini Pillay & Andrew Shapiro

Geopolitical and economic turmoil is fueling global credit market disruptions and triggering a broadening view of portfolio risk exposure among corporate treasurers.

The confluence of complex financial marketplace dynamics has accelerated tightening of the credit markets. The first of these dynamics is inflation. Borrowers and lenders are taking a more cautious outlook on financial management as macro challenges emerge due to the inflationary pressures.

Central banks worldwide are raising rates in direct response to inflationary stress, to preserve market integrity and support recovery stability in the post-pandemic environment. According to The New York Times, in a business article that appeared on July 18, 2022, “at least 75 central banks lifted interest rates this year.” The aggressive increases throughout 2022 have led to a global phenomenon of more expensive credit and higher default risk.

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