So, just how long are global banks expected to feel the subprime pain? The latest wave of traders’ so-called “butterfly” bets seems to be as good an indication as any.

Traders are betting that the credit crunch will still be hurting banks at the end of 2010 with financial institutions expected to be scrambling for cash to shore up their end-of-year balance sheets.

A popular so-called butterfly trade in the money markets is showing expectations of three to four times the stress at the end of 2010 as before the credit crisis started to bite last summer. Meanwhile, intensifying fears about Europe’s economic outlook have dented fund managers’ confidence in European equities, which are under pressure from gloomy data on inflation and growth.

As the benchmark pan-European FTSE Eurofirst 300 dropped almost 25% this year, analysts said stocks would remain under pressure. Investors are also starting to desert emerging market equities, as fund managers who together oversee $610bn have slashed their investments this month on fears that surging inflation would hamper domestic demand and leave economies stagnant.

Continue reading on FT.com

Next article » Blackstone’s Built-In ‘Bank’

Previous article « Coal-Miners' Daughters Never Had It So Good