Watch the Real Yield Curve

Real yields are an indicator of risk appetite. Persistently negative real yields are often a precursor to extended levels of leverage and credit bubbles. When they start to rise they point to tightening financial conditions which stresses firms’ equity, causing equity...

Nosebleed Valuations Persist in US High Yield

In August, we had reviewed a few charts showing that US high yield valuations were divorced from fundamentals, as well as to other yield products. This week, refreshing those charts, we can see that things are just as bad. US high yield seems to be the most vulnerable...

The Yield Curve and Volatility

Falling liquidity was one of the principal reasons behind our call for a flatter US yield curve this year. Excess liquidity often drops towards the end of an expansion. At the same time the relative demand for credit falls, while the central bank is reacting to...

Dollar Very Stretched to the Downside

The DXY index has fallen in a straight line this year, with the Sharpe ratio of the YTD move at almost 2.4. Although we have been bearish on the dollar from a macro point of view since last year, the dollar does look vulnerable at present to a short squeeze. The top...

Headwinds for Housing and Autos

Earlier this year we wrote a Thematic piece on autos arguing that we would see auto companies cut prices to move inventory, idle plants and produce fewer cars. We have already seen a slowdown in car sales, and some manufacturers have guided to lower production this...

Another Nail in the Reflation Coffin: Real Yield Curves

Although coincident growth data is holding up for now, there are a number of macro “red flags” at present, in particular flattening yield curves (despite the recent bounce, US 2s10s is still 34bps flatter YTD) and falling excess-liquidity conditions. Yield curves are...

Flatter Yield Curves a Headwind for Risk Assets

The US and global yield curves steepened briefly last summer and steepened further after Trump’s election, but it has been rolling over almost all year. This has a negative read through to growth and key risk assets. The yield curve is one of the key things we track...

No Turnaround in Sight for C&I Lending

We are seeing multiple signs of a slowdown in lending in the US, as discussed in our recent thematic US Banks Stocks: Exposed to the End of the Credit Cycle. The top chart shows a coincident relationship between sales-to-inventory ratios and C&I lending. As...
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