I spent some time with Sagar Singh Setia of the Marquee Finance by Sagar Substack to talk about the markets and what parts of the world look interesting right now
the fact that the LDI story might be behind us because the BoE intervened is nothing to be happy about. actually it creates an horrible external constraint on the central bank with bad consequences like funding a poor yielding (both in nominal and real terms) with increasingly expensive short term liabilities. Also, an inverted yield curve is far from optimal for bank lending. a pretty lousy recipe.
I agree with you on both. However, be careful of the inverted yield curve and bank lending. There is a historical correlation for sure. However, notice what the money center banks are paying for deposits now - 0%. Bank deposit rates have not gone higher even as Fed Funds has. This is because there is too much cash in the system. Bank lending is not constrained right now because of margins, it is constrained because of the lack of affordability for borrowers at these levels of rates.
the fact that the LDI story might be behind us because the BoE intervened is nothing to be happy about. actually it creates an horrible external constraint on the central bank with bad consequences like funding a poor yielding (both in nominal and real terms) with increasingly expensive short term liabilities. Also, an inverted yield curve is far from optimal for bank lending. a pretty lousy recipe.
I agree with you on both. However, be careful of the inverted yield curve and bank lending. There is a historical correlation for sure. However, notice what the money center banks are paying for deposits now - 0%. Bank deposit rates have not gone higher even as Fed Funds has. This is because there is too much cash in the system. Bank lending is not constrained right now because of margins, it is constrained because of the lack of affordability for borrowers at these levels of rates.