Leverage Lurches To Post-Crisis Highs

Tyler Durden's picture

As we noted yesterday, the credit bubble is in full swing as high-yield covenant protections hit a new low in January. At the same time, new issue premia in high yield credit has remained extremely low (meaning demand is high) - even as leverage (measured in a number of ways) surges to post-financial-crisis highs. With low yields and technical demand so abundant, firms appear to be leveraging-up in favor of shareholders. But, as is always the case, there is a limit to just how much leverage can be piled on before credit spreads 'snap' and raise the cost of capital - hindering the equity price. Finally, for the 'cash on the balance sheet' advocates, US firms' Cash/Debt is its lowest (worst) since pre-crisis. Banks continue to delever, sovereigns relever, and non-financials taking their lead - this didn't end well last time... and this time, exuberance and positioning is very heavy.

Investment Grade Leverage in the US is rising rapidly - but its the sovereigns that are leading the post-crisis releveraging...


And High-Yield leverage is also surging... and for all those 'cash on the sidelines' hopers, Cash/Debt is now at its lowest (worst) since before the crisis...

as Global banks slowly but surely delever...

Though demand remains high for bond issuance...


But where is all that leverage going? Straight to the shareholders...

But those shareholders better hope that nothing goes wrong - as they are all in complacent...



and we have seen these 'releveragings' try and drag stocks higher before - with disconnects between HY credit (being priced for that higher leverage) and stocks...

but soon enough the realization comes as credit traders shift from picking winners to avoiding losers...

The credit cycle is called a cycle for a reason - and now firms are in the releveraging mode, that systemic demand for credit may just become a little more idiosyncratic and remove a leg from the equity market's stool of exuberance.


Charts: Bloomberg and Morgan Stanley

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notbot's picture

Proof that Keynesian stimulus works.

Speaking of stimulus, I ate at Panda Express last night…now I have to go take a giant Paul Krugman.

idea_hamster's picture

Give me a fulcrum [security] and I will move [my bowels on] the world!

Sudden Debt's picture

and everything else is numerology!

magpie's picture

What does 1524.69 mean ? And where is Topcallingtroll

hedgeless_horseman's picture




ECB bank reserves are 1%. 

"...the system of reserve requirements is not needed to the same extent as under normal circumstances to steer money market conditions."

That is all.

Sudden Debt's picture

Oh well... when you drive your car and the "empty" light turns on, you can still drive your car. No need to worry... let's just take a shortcut into WolvesForest....

hedgeless_horseman's picture



No need to worry...


Draghian philosophy states:

There can be no more bank runs; 

Thus, there will be no more bank runs.

scatterbrains's picture

Who cares about leverage with this epic ground swell of sideline money pouring in..  oh wait



Clowns on Acid's picture

But Ben and his smirking pack of jackals said that QE1,QE2, and QE squared will prevent the 2009/10 and 2010/11 debacles. This isn't a bubble, this the  the new normal...it's called Hope and Change.

Didn't you hear LBJ 1964 Great Society speech last night?

As he campaigned in 1964, Johnson declared a "war on poverty." He challenged Americans to build a "Great Society" that eliminated the troubles of the poor. Johnson won a decisive victory over his archconservative Republican opponent Barry Goldwater of Arizona.

American liberalism was at high tide under President Johnson.

  • The Wilderness Protection Act saved 9.1 million acres of forestland from industrial development.
  • The Elementary and Secondary Education Act provided major funding for American public schools.
  • The Voting Rights Act banned literacy tests and other discriminatory methods of denying suffrage to African Americans.
  • Medicare was created to offset the costs of health care for the nation's elderly.
  • The National Endowment for the Arts and Humanities used public money to fund artists and galleries.
  • The Immigration Act ended discriminatory quotas based on ethnic origin.
  • An Omnibus Housing Act provided funds to construct low-income housing.
  • Congress tightened pollution controls with stronger Air and Water Quality Acts.
  • Standards were raised for safety in consumer products.


Cynthia's picture

The Fed is populated by idiots. It’s like watching a house on fire. Most of us would want to get as much water on it as fast as we could. The response of the people at the Fed would be to expand the water works. Even if you could expand the water supply to infinity and do it in a timely fashion, it doesn’t mean a thing if it doesn’t go where it’s needed.

Perhaps the prime reason we are so screwed and depression is all but inevitable is that when we look to the policymakers who might avert the coming disaster there is no one to be seen but fools, liars, and thieves.

disabledvet's picture

The Great Moderation Part Deaux. "We didn't mean to take away the punch bowl...we meant to create the biggest punch bowl in history!"

disabledvet's picture

The Great Moderation Part Deaux. "We didn't mean to take away the punch bowl...we meant to create the biggest punch bowl in history!"

Dr. Engali's picture

The Bernank has Pavlov's dogs trained well.

conspicio's picture

These charts are great and all, but if you really want visuals of what-the-fuck-all this means, I give you this brilliance:



RationalPrepper's picture

Since Karl Denninger is big on "leverage," I'll post this here (I refuse to register at his site).  But I'm sure some of you saw his "It has started...that is all..." post.  Wish I had a silver dime for every time he's said "Here it comes."  Wonder if that's code for a bowel movement.  If the "it" he refers to is the fact that everything is going to cost more...well...he's a little late to that party.

buzzsaw99's picture

He's been calling for a bond crash for at least the last ten years. http://www.youtube.com/watch?v=stdi-1tIUhM

RationalPrepper's picture

Just a wild guess, but I bet that's about the same length of time he's been bashing PMs...

Yen Cross's picture

   Banks slowly delevering, those pole smokers are selling their junk at the top. They know shit is going to hit the fan. That green chart makes me want to puke acid all over Bernanke.


 [ Leverage changes since 2007]. The levering up is substantially more then the delevering was after the GFC. This shit is beyond laughable!

   Get ready for some more tape bombs, the US T10 auction is just under 2 hours away, and they are up 3.5bps.

thismarketisrigged's picture

whats happening, this is unacceptable, dow is down 60 pts, did bernankes printer run out of ink?


how soon before these fraudsters bring it back to green?


fucking criminals.

Jason T's picture

The writing is on the wall for all to see.


Ships about to hit the sand.

dark pools of soros's picture

Why did it crash last time? The squid and friends wanted to change the rules... They won't crash this until they have another reason.
There are no fundamentals

yogibear's picture

They need the right number of people to feel comfortabe to go back into the market.

Once loaded they pull the trap door.