Western credit markets are holding up remarkably well

CREDIT IS THE financial system’s oxygen supply. When it flows freely, it does so unnoticed. When it stops, soon enough everything else does as well. The hypoxic episode that felled the American investment bank Lehman Brothers in 2008 unleashed chaos, turning a subprime-mortgage crunch into a global financial crisis. Ever since, central banks and market pundits have fixed a hawk-like gaze on credit conditions, wary of a repeat.Today’s scramble for safe assets was prompted not by a financial crash but by Vladimir Putin’s invasion of Ukraine. Nevertheless, there are similarities. Once again, the dollar is ascendant as investors flee riskier currencies. Hedging costs, particularly for the war-adjacent euro, are spiking as volatility rises and traders bet that a protracted conflict will continue to favour the greenback. A rush into American government debt—the safest asset of all—has pushed Treasury yields down even as inflation expectations have risen. Prizing security over returns, lenders have driven corporate-bond spreads up.