Our Insights

About personal finance, investments and markets.
March 29, 2014

Bonds need a warning label – Accelerating US bank loan growth becomes harder to ignore

If they will lend it, someone will spend it. US loan growth is THE key factor driving the economy. The most recent data from the US FED shows that loan growth is now really accelerating hard. With +8.9% growth for loans and leases, February showed the highest growth rate since 2008. The first three weeks of March show a further strengthening of this trend. At the margin, this makes us more more bullish on the US economy and financials but more hawkish on rates. We stick to our fixed income underweight and see a risk at the short end of the curve as the market is likely to price in a more rapid response from the FED.

H8 Trend in loans and leases was weak for a long time but the acceleration is hard to ignore

The Big Picture or why growth of „loans and leases“ matters: The growth rate of the sum of bank lending and the Fed balance sheet had in the past a correlation with US GDP growth of more than 70%. Historically, the sum of bank lending + Fed balance sheet grew at 7%-7.5% on average. The most recent data shows a growth rate in excess of 10%. The last time we saw a growth rate in excess of 10% was during the NASDAQ bubble in the late 90s and the housing bubble in the mid-2000s. Nobody wants to see a repeat of that scenerio, hence the FED will continue on its path towards monetary tightening.

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