Credit is getting loose

Daily Data: Shadow banks are going to chase yield somewhere else, and we all know what that means

In today’s dispatch:

• private credit is no longer the only game in town

• banks are eating their own lunches, thank you very much

• the chase for yield returns to old new frontiers

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Credit is getting loose

Private Credit is Cutting Prices

When the Fed first started raising interest rates, there was very valid concern about what would happen when capital became scarce.

It was also an opportunity for non-bank lenders (“shadow banks”) to raise a ton of money as lenders in a time of need. They charge more than a typical bank lender, but some lending is better than no lending.

Indeed, private lenders were so successful, the banks were sad to be missing out on the fun. Bankers started pushing their own banks to become more permissive, so that they could lend money too.

Why should private credit be the only game in town?

Well, banks are now so successfully back-in-the-game, that private lenders are starting to cut prices on their loans, and the spread between their loans and bank loans is starting to tighten:

The extra cost of a private bank loan is still pretty high, but it started rolling over in December.

Shadow banks have some competition now, and competition is making their lives less fun.

Banks and Borrowers are doing a lending bonanza

That price cut from shadow banks comes on the heels of the massive investment-grade bond issuance that closed out the year (and continued into January and February too):