From the FT: “Global debt rose at an unprecedented pace in the first nine months of the year as governments and companies embarked on a ‘debt tsunami’ in the face of the coronavirus crisis… From 2016 to the end of September, global debt rose by $52tn; that compares with an increase of $6tn between 2012 and 2016.”
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For a decade, the world brushed off any concerns about soaring global debt under the rug for a simple reason: between the Fed, the ECB and the BOJ, there was always a buyer of last resort, providing an implicit or, increasingly explicit backstop to bond prices, in the process creating the biggest asset bubble in history as investors seeking return were forced to buy first fixed income securities and then equities and other, even riskier securities.
However, as BofA’s Barnaby Martin is the latest to point out, “early 2019 will be uncharted territory for the market” because after years of central bank purchases crowding investors into risky assets, this dynamic will now reverse. As Zero Hedge readers have observed on countless occasions, the yearly growth of central bank balance sheets is now turning negative as shown in the following chart.
The upshot of this, in Martin’s view, is that markets will continue to experience more “corrections” than normal, leading to bigger and fatter trading ranges for credit spreads in Europe this year.
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