Look! Another VIX Anomaly Or, How To Bury A Lede

Figuring out what people give a shit about on any given day is more an art than a science.

Which means that if you aren’t a newswire and you’re writing for public consumption, you have to pick your spots – feel readers out, as it were.

Along those lines, I’m not entirely sure anyone was actually “looking forward” to the release of the Federal Reserve’s senior loan officer survey for April. If ever you find yourself thinking about the senior loan officer survey the minute you wake up (“fuck yeah! the senior loan officer survey is out today!“), that’s the day you need to reevaluate how you’re living your life.


But there were some notables that you should be aware of, so this is one of those scenarios where you have to mix in what people should care about with what they actually do care about in order to keep folks up to speed.

Here’s Barclays with what you need to know:

Yesterday afternoon, the Fed released its quarterly Senior Loan Officer Survey on Bank Lending Practices for April 2017. It addresses changes in the standards, terms and demand for bank loans over the past 3 months (roughly corresponds with 1Q17). This quarter it included a set of special questions on CRE lending conditions.  Respondent banks received the survey on or after March 27, and responses were due by April 10.

Loan demand across all lending segments generally softened during 1Q17. While mortgage demand was generally unchanged (though government and non-QM non-jumbo mortgage was weaker); C&I demand was modestly weaker (though inquiries for C&I lines of credit was unchanged and CRE (broad-based), credit card, and auto was weaker. Key reasons cited as drivers of for weaker C&I demand included decreases in customers’ investment in plant or equipment and decreases in M&A financing needs.

Tighter lending standards could foreshadow CRE and auto credit quality deterioration.  During 1Q17, banks eased lending standards for credit card loans and GSE-eligible and government mortgages; left C&I and other mortgage standards unchanged; and tightened in CRE (particularly C&D and multifamily) and auto.  Tighter standards have foreshadowed deteriorating credit quality.

Changes to terms varied by asset class.  Banks reportedly eased most terms on C&I loans (increased maximum size of credit lines, reduced the cost of credit lines, narrowed the spread of loan rates over cost of funds, and eased covenants) amid more aggressive competition from other banks or nonbank financials, as well as a more favorable/less uncertain economic outlook.  Still, banks tightened most terms on auto (widened the spread of loan rates over cost of funds, reduced the extent to which loans are granted to some customers that do not meet credit scoring thresholds, and increased the minimum required credit score).  Credit card terms were unchanged.

CRE remains a focus of the regulators.  Responding to a set of special questions, banks reported tightening most credit policies on CRE loans over the past year. The banks cited a less favorable or more uncertain outlook for CRE property prices, cap rates, and vacancy rates.  Banks also cited a reduced tolerance for risk.  Banks are broadly increasing spreads over their cost of funds on CRE loans.  Still, a significant net percentages of banks also reported lowering LTV ratios on C&D and multifamily loans.

Right, so just note the bolded and underlined bits.

But the reason you clicked was because everyone’s talking about the VIX, right?

And so, in an effort to master the art of tying together things that people should care about with things that people actually care about, here’s a VIX/ C&I lending disconnect…

Via BofAML

Senior loan officers vs. VIX.

One of the key stories we have been tracking for most of the year is the lack of loan demand in the US across the board. That was apparent in the February Senior Loan Officer Survey as well as subsequently weekly bank asset data from the Fed. Hence not surprisingly [Monday’s] fresh Sr. Loan Officer Survey showed continued very negative growth in consumer loan demand as well as deterioration into negative territory for C&I lending. It thus appears that the key post-election story continues – i.e. while optimism is high everybody is in wait-and-see mode pending details on tax reform from the new administration.

The longer this lasts the greater the risk of more weakness in hard data. It appears a great contradiction to these circumstances that the VIX closed today at 9.77 – the lowest since December 1993. Weak loan demand tends to be associated with high volatility, not low. 


Now that’s how you bury a fucking lede.




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