Borrowing Costs

Warning: This Measure Of Credit Is At Its Worst Level Since The Crisis

Despite goldilocks (to use a financial market cliche) conditions characterized by the interplay between yield-starved investors, rock-bottom borrowing costs, and companies’ propensity to leverage their balance sheet in order to inflate earnings and underwrite their stock price, at least one leading indicator is flashing red.

BofA Is Confusing Liquidity Fueled And Secular Bull Markets

Over the past couple of years, there has been a growing chorus of individuals claiming that the financial markets have finally shaken the shackles of the secular bear market that began at the turn of the century. Bank of America is the latest to jump onto the "new secular bull market" bandwagon; but what they miss is that secular bull markets are not born of price, but rather of a set of fundamental metrics that foster sustained economic growth over long periods of time.

European Banks Are Paid To Borrow For First Time Ever As Euribor Goes Negative

Mario Draghi said this week that the transmission channels for European Q€ were opening up and crowed how well his cunning plan was working (by well we assume he means stocks are up). Today we get the ultimate test of that 'transmission' as 3-Month EURIBOR fell below 0.00% for the first time ever (likely wreaking havoc on European derivative pricing models). In English that means banks are being paid to borrow from one another in the interbank money-markets (which sounds a lot like a 'glut' of excess cash) seemingly confirming ICMA's de Vidts fears: "We are scared about the [repo] market freezing," as the ECB is "driving without headlights in the dark." Of course this is yet another disturbing distortion on the heels of homeowners being paid to take out mortgages...

China Floats QE Trial Balloon, PBoC May Launch LTROs

China may allow commercial banks to swap the local government bonds they purchase for cash loans from the PBoC, WSJ reports. The country's local governments are laboring under a debt load that totals 35% of GDP and much of it carries relatively high interest rates. A new program will allow localities to swap a portion of that debt for lower-yielding bonds. If China does indeed roll out an LTRO-like initiative, the banks which buy the new local government bonds would then be able to pledge them as collateral for cash from the central bank.

The Global Liquidity Squeeze Has Begun

The entire global financial system resembles a colossal spiral of debt. Just about all economic activity involves the flow of credit in some way, and so the only way to have “economic growth” is to introduce even more debt into the system. Unfortunately, any system based on debt is going to break down eventually, and there are signs that it is starting to happen once again.

The Changing World Of Work 2: Financialization = Insecurity

The Millennial Generation, if we're to believe various polls, aspires to either make boatloads of money on Wall Street, or secure a can't-be-fired job in the government. Given the dominance of finance and an economic backdrop of rising insecurity, these are rational choices. But all those Millennials hoping to work for Goldman Sachs does raise a question: when did playing financial games become so much more profitable than producing goods and services?

 

Bonds Are Right! DoubleLine's Gundlach Warns Fed "Has Been Wrong For So Long... Offers No Value"

History is on the market’s side, says DoubleLine's Jeff Gundlach, noting the Fed’s forecast for how much benchmark rates will rise is still too high, even after central bankers lowered their estimates last month. BlackRock’s Jeffrey Rosenberg says the bond market’s too complacent and is poised for a correction, claiming The Fed has "a tremendous ability" to send bond yields higher. But as Bloomberg reports, "if the burden of proof is on anybody, it’s on the Fed," and for now, as Gundlach exclaims, The Fed has "been wrong for so long," that their forecasts have been literally of no value, "the market’s pricing has been closer."

Frontrunning: April 6

  • Political Battle Ramps Up Over Iran Nuclear Deal (WSJ)
  • Greece moves to quell default fears, pledges to meet 'all obligations' (Reuters)
  • Isolated Greece pivots east to Russia, China and Iran. But will it work? (Telegraph)
  • Frustrated officials want Greek premier to ditch Syriza far left (FT)
  • Greek political unrest and deepening debt crisis fuel talk of snap election (Guardian)
  • Rand Paul’s Challenge: Charting His Own Course (WSJ)
  • In Greenspan Conundrum Redux, Odds Are on Bond Traders’ Side (BBG)
  • Yemen's Aden suffers amid clashes, aid deliveries delayed (Reuters)
  • Record Gasoline Output to Curb Biggest U.S. Oil Glut in 85 Years (BBG)

If We're Going To Borrow Against The Future, Let's Borrow To Invest

We are at an important juncture as a global society: either we immediately prioritize a new trajectory focused on creating a positive, functional future or -- by continuing the consumptive, extractive, exploitative status quo -- we will default into a nasty nightmare. What will determine which future path we take is our collective narrative. It's the story we tell ourselves -- who we are, what we value.

Companies Go All-In Before Rate Hike, Issue Record Debt In Q1

Not only did Q1 mark a record quarter for issuance, March supply also hit a record at $143 billion, tying the total put up in May of 2008. It should come as no surprise that Q1 was a banner quarter for corporate debt issuance as struggling oil producers tapped HY markets to stay afloat and companies scrambled to max out the stock-buyback-via-balance-sheet re-leveraging play before the Fed hike rates.