Credit Markets Still Tied Together

BofA’s measures of global liquidity and solvency risks, which we profiled last month, have laid dormant at ultra-easy levels until this past month. The liquidity index incorporates spreads within governments, credit, and currencies, while the solvency index aggregates corporate CDS and government bond spreads. Both measures have begun to awaken, but have yet to reflect substantially tightening conditions. 

Investors Refusing to Let Go of Transitory Inflation

The real oddity this time around has been quite tranquil conditions further out sovereign bond curves. Unlike the race to higher yields in 2011 and again in 2013 with the taper tantrum, volatility expectations for longer-end rates have yet to give chase.

Private Equity’s Good Times Long in the Tooth

Any shift in solvency risks and financial leverage by central bank tightening would likely impair private equity. Only time will tell, but short-term rates are off to one heckuva start heading into November.