2020-04-01 Bloomberg Markets Magazine

Banks remained dominant, but credit
holdings by nonbank institutions rose, too.

Credit Assets Balloon The Rise of the Shadow Banks

Investment funds were particularly active. At the end of 2018, they held more than

$8 trillion in credit assets, more than double their holdings before the financial crisis.

Credit Assets Held Worldwide Credit Assets by Subsectors of Other Financial Intermediaries

As a Result, Investors Sought Yield in Risky Places

With so little yield in traditional bond markets, investors went into less liquid and less regulated markets, where expected
returns are bigger. They piled into loans to highly leveraged companies or smaller businesses with untested cash flows.

Picture of Complacency

Credit markets had just entered a
second decade of low yields, and the
economy was in its longest-ever
expansion. Aside from a few periods of
volatility, debt was cheap and easily
obtained by even the lowest-rated
companies.
How did investors become so
complacent? It started with the trillions
of dollars that central banks worldwide
unleashed into the financial system
beginning with the financial crisis
in 2008.

Those easy-money policies sent yields

to unprecedented lows and even flooded

the market with negative-yielding debt.

Starved of Yield

Outstanding Negative-Yielding Assets

Global market value at month’s end

After 2008 and again in 2020, the Fed,

European Central Bank, and Bank of Japan

made purchases to grease markets.

Central Bank Largesse

Central Bank Balance Sheet

Fed ECB BoJ

Investment funds

Broker-dealers

Money-market funds

Finance companies

$16t

12/2009

0

3/2020

$6t

3/2000

0

3/2020*

The Hunt for Yield

Outstanding market for U.S. dollar-denominated

collateralized loan obligations that package together

risky corporate loans

Sales of leveraged loans to institutional investors Private credit assets under management globally

EMEA* Direct lending

Distressed debt

Other

U.S.

’09

$606b

1Q ’19

$3 2 3b

1Q ’14

$1.6t

0

’19 ’09

€250b

0

’19 2000

$800b

0

2019 †

2002

$8t

0

2018

Banks

Insurers, pensions

Other financial

intermediaries

’02 ’18

0

$120t

VOLUME 29 / ISSUE 2 55