Financial markets have held up relatively well this week in the face of financial turmoil in the tiny European island of Cyprus, prompting some analysts to warn that investors are too complacent about the potential fallout from the crisis.
The European Union on Thursday gave Cyprus until Monday to raise the billions of euros the country needs to secure a bailout or face a collapse of its financial system that could mean Cyprus is forced to leave the euro zone. Ratings agency Standard & Poor's meanwhile cut Cyprus's credit rating one notch to CCC, pushing the rating deeper into junk territory.
(Read More: S&P Cuts Rating on Cyprus by One Notch to Triple-C)
And while jitters over Cyprus have weighed on financial markets this week, the selling in risk assets has not been as steep as feared. Stock markets in the U.S. and Europe are down about 1 percent this week, while Asian shares have shed about 2 percent.
"There is a degree of complacency and this is something we have been seeing for the past two months as investors become increasingly bullish," said Rob Aspin, head of equity investment at Standard Chartered. "One should anticipate some short-term weakness."
Yields on European peripheral government bonds, widely viewed as a gauge of investor sentiment in Europe, have also held up reasonably well.
Benchmark 10-year Italian bond yields dipped to 4.6 percent from 4.7 percent on Thursday. Yields on Spanish 10-year government bonds, which spiked above 5 percent earlier this week, are trading just below that level.