Borrowing costs

As US inflation soars, this chart shows borrowing costs on Wall Street have nothing to do with the 1980s

As US inflation hits 40-year highs, straining consumer sentiment, it has rarely been so cheap to borrow on Wall Street.

This is mainly because the sharp rise in consumer prices to early 1980s levels during the pandemic has not led to a similar surge in the benchmark 10-year Treasury rate – used to value trillions of dollars. longer-term assets, from corporate bonds to mortgage debt.

The consumer price index rose to 7.5% in January from a year earlier, its biggest rise since February 1982. However, the 10-year rate is nowhere near its 14% return from it four decades ago (see graph).

Consumer Prices May Rise, But Wall Street Borrowing Costs Clearly Aren’t

CreditSights

Cheap funding has been an integral part of Wall Street in the decade since the 2008 global financial crisis, a time that has also raised concerns about corporate America and other parts of financial markets accumulate too much debt, with the help of investors in lack of return.

When the pandemic hit, borrowing costs plunged again as the Federal Reserve and other central banks implemented expansive policies to maintain credit, including cutting global policy rates to near zero and by relaunching numerous large-scale asset purchases.

Even with the jump in 10-year Treasury yields to start 2022, CreditSights analyst Winnie Cisar, global head of strategy, pegged the 10-year Treasury yield as TMUBMUSD10Y,
2.039%
February 1982 to about 1,200 basis points above current levels.

The disparity illustrates “how central bank policies in the United States and abroad have impacted the U.S. market, particularly for the longer end of the curve,” Cisar said in a note. Monday.

U.S. stocks, bonds and other financial assets had a tough January as investors focused on change among central bankers to fight inflation globally, to hike rates and reduce their balance sheets.

Read: Investors pull $15.8bn from US junk bond funds to start year, worst outflows since 2010: Goldman Sachs

This greatly reduces the pile of global debt is trading at negative yields as investors brace for tighter financial conditions, and helped US speculative-grade, or junk-bond, spreads widen to around 3.7%, near the highest in a year. Spreads are the level that bond investors can earn above a risk-free rate, often Treasury bills, to help offset the risk of a security defaulting.

Adding to market jitters, tensions between the United States and Russia over Ukraine have increased, with a possible invasion from Moscow threatening markets. On Monday, it helped crude oil futures CL00,
+0.41%
get closer to $100 a barrel and the Dow Jones Industrial Average DJIA,
+1.22%
and the S&P 500 SPX index,
+1.58%
both are trading lower.