Are the credit markets showing some signs of revival?
At first glance, it appears that the answer is yes, at least for high-quality corporate borrowers, The New York Times’s Floyd Norris writes in his Off the Charts column. The volume of investment-grade corporate bonds issued in Europe and Asia in the first three months of this year was the highest ever for any quarter, while in the United States the total fell just short of the record.
But that glance is deceiving. Corporate bond markets around the world are functioning in large part because of government guarantees.
Eight months ago, before the collapse of Lehman Brothers and the rescue of theAmerican International Group, the idea of a government-guaranteed corporate bond would have seemed contrary to basic capitalist principles. Now, such bonds account for a substantial share of corporate bond issuance, generally by banks and other financial companies.
The accompanying charts show the volume of new bond issues and new syndicated bank loans, by quarter, going back to 2005, in the United States, Europe and Asia, as reported by Thomson Reuters.
Even without the guarantees by governments, the issuing of corporate bonds did pick up from the low levels of late 2008. But syndicated loans — loans made by banks and then sold off to other banks and financial institutions — have shown much less recovery among investment-grade issuers.
And for riskier borrowers, there is little sign of an ability to borrow. The volume of leveraged loans — syndicated loans issued to less creditworthy corporate borrowers — continues to decline around the world. And the high-yield, or junk bond, market has only started to recover in the United States and remains moribund elsewhere.
It could be seen as a disappointment that the $500 billion in government-guaranteed loans issued around the world in the last half year have not done more to spur bank lending. But the syndicated loan markets continue to suffer because whole classes of buyers have vanished. Such loans were previously packaged into collateralized loan obligations, or C.L.O.’s, which were then sold as securities that could be rated as high quality even though the underlying loans were not. That business has blown up, and, increasingly, banks are making only those loans that they, or other banks, are willing to keep on their own balance sheets.
In the United States, the total volume of leveraged loans and junk bonds issued over the last six months was $70 billion. That figure is one-tenth the size of the figure for the first six months of 2007, before the subprime mortgage crisis in the United States began to shut down the supply of money for risky loans. The declines are smaller in Europe and Asia, but the volume of risky loans never grew as large in those markets.
A resumption of functioning corporate credit markets would be a strong indication that the credit crisis was receding. But the fact that the current growth in lending is largely a function of government guarantees shows that the credit markets remain far from healthy, even if they are larger than they were in late 2008, when the panic was most intense.
“Credit markets are materially better, but not normal,” Bruce Kasman, the chief economist of JPMorgan Chase, said this week at the Hyman P. Minsky conference of the Levy Economics Institute of Bard College.
ARE the credit markets showing some signs of revival?
At first glance, it appears that the answer is yes, at least for high-quality corporate borrowers. The volume of investment-grade corporate bonds issued in Europe and Asia in the first three months of this year was the highest ever for any quarter, while in the United States the total fell just short of the record.
But that glance is deceiving. Corporate bond markets around the world are functioning in large part because of government guarantees. Eight months ago, before the collapse of Lehman Brothers and the rescue of the American International Group, the idea of a government-guaranteed corporate bond would have seemed contrary to basic capitalist principles. Now, such bonds account for a substantial share of corporate bond issuance, generally by banks and other financial companies.
The accompanying charts show the volume of new bond issues and new syndicated bank loans, by quarter, going back to 2005, in the United States, Europe and Asia, as reported by Thomson Reuters.
Even without the guarantees by governments, the issuing of corporate bonds did pick up from the low levels of late 2008. But syndicated loans — loans made by banks and then sold off to other banks and financial institutions — have shown much less recovery among investment-grade issuers.
And for riskier borrowers, there is little sign of an ability to borrow. The volume of leveraged loans — syndicated loans issued to less creditworthy corporate borrowers — continues to decline around the world. And the high-yield, or junk bond, market has only started to recover in the United States and remains moribund elsewhere.
It could be seen as a disappointment that the $500 billion in government-guaranteed loans issued around the world in the last half year have not done more to spur bank lending. But the syndicated loan markets continue to suffer because whole classes of buyers have vanished. Such loans were previously packaged into collateralized loan obligations, or C.L.O.’s, which were then sold as securities that could be rated as high quality even though the underlying loans were not. That business has blown up, and, increasingly, banks are making only those loans that they, or other banks, are willing to keep on their own balance sheets.
In the United States, the total volume of leveraged loans and junk bonds issued over the last six months was $70 billion. That figure is one-tenth the size of the figure for the first six months of 2007, before the subprime mortgage crisis in the United States began to shut down the supply of money for risky loans. The declines are smaller in Europe and Asia, but the volume of risky loans never grew as large in those markets.
A resumption of functioning corporate credit markets would be a strong indication that the credit crisis was receding. But the fact that the current growth in lending is largely a function of government guarantees shows that the credit markets remain far from healthy, even if they are larger than they were in late 2008, when the panic was most intense.
“Credit markets are materially better, but not normal,” Bruce Kasman, the chief economist of JPMorgan Chase, said this week at the Hyman P. Minsky conference of the Levy Economics Institute of Bard College.
Floyd Norris’s blog on finance and economics is at nytimes.com/norris.
