David Jane: The great normalisation

More cynical markets

clock • 2 min read

The last 10 years have seen a high degree of misallocation of capital and now, looking ahead, warns David Jane, higher interest rates could lead to a huge increase in the number of failing borrowers

There is a consistent correlation between the direction of equity markets and credit spreads. Credit spreads reflect the bond market's perception of future economic activity and corporate profits, and are therefore a key indicator for equity markets. Credit spreads in the US have been rising over the course of 2018, and the equity market has had a painful, volatile and unprofitable year. Most economic indicators remain positive, however - albeit pointing to lower growth going forward. On a longer-term basis, credit spreads remain well within normal ranges and are certainly not at leve...

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