Since its lows in May of 2014, short-term USD borrowing costs (1M Libor) have quadrupled. As the 100%-priced-in December rate-hike looms, the cost of funding for American businesses is once again on the rise, now at its highest since December 2008.
For now, it seems, the most levered US equity market ever appears ignorant of this rapid tightening of financial conditions…
But then again, perhaps this time is different?
However, as Barclays previously noted:
"Similar to our view on payout ratios limiting dividend growth, we believe debt-to-EBITDA has reached a point where it is becoming a constraint on additional leverage."
While we would be the first to agree, so far companies have proven very resilient to recurring warnings that "peak debt" has arrived, almost exclusively thanks to central banks which continue to force investors to chase what little yield remains, ostensibly in corporate debt – the BOE's launch of corporate debt monetization today being a perfect example this morning – while ignoring all the flashing red signs..
But maybe things have got just a little out of hand this time…
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