What credit markets are telling us now

Jonathan Rochford

Narrow Road Capital

Hyman Minsky explained that it is the availability of credit that drives business cycles. If businesses are able to easily borrow they will expand, if the availability of credit dries up they will contract. The US high yield market, via the Merrill Lynch US High Yield Master II, is the easiest indicator to track. In June 2014 the margin over treasuries was 3.36%, this is now at 7.46%. For the lowest quality borrowers, those rated B- or lower, debt may not be available at any price. When new debt was freely available, US oil and gas companies ramped up capital expenditure and increased production followed shortly thereafter. Wages boomed and demand for supporting services jumped as well. Now that the availability of new debt has been shut-off to all but the highest quality borrowers in this sector jobs are being lost and equipment is being idled.


Jonathan Rochford
Portfolio Manager
Narrow Road Capital

Narrow Road Capital is a credit manager with a track record of higher returns and lower fees on Australian credit investments. Clients include institutions, not for profits and family offices.

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.

Comments

Sign In or Join Free to comment
Elf Footer