Cycles, Bubbles and Crises

What will you learn?

When creditors lend to borrowers, they typically do it over several years, sometimes decades. During that period, borrowers must make interest payments at fixed intervals and repay the principal at maturity.

Creditors are therefore interested in understanding what could jeopardize the capacity and willingness of borrowers to make these payments. And because it is difficult to make accurate forecasts over very long periods, being a student of history gives us hints: how bad could it get?

This module reminds credit market professionals, experienced and new, that “this time is NOT different”, and an upcycle will be followed by a downcycle. It is just a matter of time. Just as importantly, it will provide an anchor for their financial forecast to test borrowers’ capacity to service their debt over long periods.

[i] The exception being zero coupon bonds, where interest payments are accrued during the transaction and paid in a lump sum with principal at maturity.