{"id":27972,"date":"2013-02-13T16:40:50","date_gmt":"2013-02-13T15:40:50","guid":{"rendered":"http:\/\/feedproxy.google.com\/~r\/zerohedge\/feed\/~3\/BxfBeOwORLI\/story01.htm"},"modified":"2013-02-13T16:40:50","modified_gmt":"2013-02-13T15:40:50","slug":"leverage-lurches-to-post-crisis-highs","status":"publish","type":"post","link":"http:\/\/rinf.com\/alt-news\/breaking-news\/leverage-lurches-to-post-crisis-highs\/","title":{"rendered":"Leverage Lurches To Post-Crisis Highs"},"content":{"rendered":"
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As we noted yesterday<\/a>, the credit bubble is in full swing as high-yield covenant protections hit a new low in January<\/strong>. At the same time, new issue premia in high yield credit has remained extremely low (meaning demand is high) – even as leverage (measured in a number of ways) surges to post-financial-crisis highs. With low yields and technical demand so abundant, firms appear to be leveraging-up in favor of shareholders. But, as is always the case, there is a limit to just how much leverage can be piled on before credit spreads ‘snap’ and raise the cost of capital – hindering the equity price. Finally, for the ‘cash on the balance sheet’ advocates, US firms’ Cash\/Debt is its lowest (worst) since pre-crisis<\/strong>. Banks continue to delever, sovereigns relever, and non-financials taking their lead – this didn’t end well last time… and this time, exuberance and positioning is very heavy.<\/em><\/p>\n

Investment Grade Leverage in the US is rising rapidly<\/strong> – but its the sovereigns that are leading the post-crisis releveraging…<\/p>\n

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And High-Yield leverage is also surging… and for all those ‘cash on the sidelines’ hopers, Cash\/Debt is now at its lowest (worst) since before the crisis…<\/strong><\/p>\n

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as Global banks slowly but surely delever<\/strong>…<\/p>\n

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Though demand remains high for bond issuance…<\/strong><\/p>\n

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But where is all that leverage going? Straight to the shareholders…<\/strong><\/p>\n

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But those shareholders better hope that nothing goes wrong – as they are all in complacent…<\/strong><\/p>\n

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and we have seen these ‘releveragings’ try and drag stocks higher before – with disconnects between HY credit (being priced for that higher leverage) and stocks…<\/p>\n

<\/a><\/p>\n

but soon enough the realization comes as credit traders shift from picking winners to avoiding losers<\/strong>…<\/p>\n

The credit cycle is called a cycle for a reason<\/strong> – and now firms are in the releveraging mode, that systemic demand for credit may just become a little more idiosyncratic and remove a leg from the equity market’s stool of exuberance.<\/p>\n

Charts: Bloomberg and Morgan Stanley<\/em><\/p>\n