Article / 03 December 2015 at 11:29 GMT

Price of money rising despite loose ECB and late Fed

Chief Economist & CIO / Saxo Bank
Denmark
  • Capital costs far too much already
  • Junk yields have gone ballistic
  • Yields up on the lowest investment grade bonds
  • Global defaults hit 6-year high of $95bn

By Steen Jakobsen

Here's an interesting chart – the US “excess rate” in the 10-year sector – hence the “cost of capital” for the reserve/funding currency of choice.

excess
 Source: Bloomberg, Saxo Bank
 

An excessive price of money tends to kill growth in the rest of the world, send markets lower and impact the US dollar and risk.

Here it's charted versus the DXY index. The excess rate follows Sinus-like progress from -50 to +50 while below/above causes reversals.

In other “divergence” it is currently completely maxed out.

Here's a look at the 12-month (1-yr) GDP weighted. Here, too, the price of money rising.
chart
 Source: Bloomberg, Saxo Bank


And in the credit space: CCC – junk has gone ballistic.
chart


Even BAA – lowest investment grade keeps seeing rising yields.
chart

Leveraged loans @ 2010/11 prices!
chart
 
FT article

Source: Financial Times

Another divergence chart… EUR high yield vs Global High Yield.
chart
 

– Edited by Clare MacCarthy

 

Steen Jakobsen is chief economist and CIO at Saxo Bank

4y
Juhani Huopainen Juhani Huopainen
For those able to get it, price of money reasonable, back to 2010-levels in the euro area. Where it was supposed to be before the ECB decided to panic about inflation that never was.

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