The four developments that should guide financial markets after the crisis

We believe financial markets will be driven by four key developments after the crisis: A permanent rise in risk aversion ; Increasing corporate debt; Rising inflation; The abundant liquidity offered by central banks. We can expect these four developments to lead to long-lasting changes: A lasting rise in credit spreads, especially for the worst ratings; A decline in equity valuation (private equity multiples, multiples in LBOs); A preference for unlisted over listed assets; Yield curve steepening; Increased variability in financial asset prices and exchange rates.