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EndGame Macro
Where Medieval Power Meets Modern Finance And The Untold Story of the City of London
Werner’s point resonates because the City of London really does sit inside the U.K. with a political and legal structure unlike anything else in the country. Its odd status isn’t modern at all, it’s the product of a series of agreements that go back nearly a thousand years. After the Norman Conquest, William I issued a charter in 1067 guaranteeing that London’s citizens could keep their ancient laws and customs. That single act effectively recognized the City as a semi autonomous community inside the kingdom at a time when royal authority was consolidating everywhere else. In 1215, Magna Carta singled out the City explicitly, promising it would retain all its ancient liberties and free customs. And around that same period, London secured the right to elect its own mayor, a privilege no other English town had. These weren’t symbolic flourishes; they created a civic identity that endured through dynasties, civil wars, imperial expansion, and the rise of the modern British state.
Those liberties also positioned the City to become the country’s financial engine. By the late 1600s, after the Glorious Revolution reshaped the constitutional order, money and politics in England were fused more tightly than ever. In 1694, City merchants founded the Bank of England to finance government debt, marking the beginning of Britain’s permanent national debt and the architecture of modern public finance. As the empire expanded, the City became the clearinghouse of global commerce, all while retaining its unusual governance as a medieval municipal corporation run by livery companies and business interests rather than a typical democratic electorate. When Werner says the U.K. doesn’t have finance; the City of London has it, he is pointing to this long trajectory. Britain’s financial power grew through the City’s institutions rather than through Westminster, giving the Square Mile a center of gravity that sits somewhat apart from the rest of the country.
Why It Still Feels Separate And What the Law Says Today
The City’s modern structure reinforces this older story. It is still the only jurisdiction in the U.K. where businesses have formal voting power in local elections, a system updated in 2002 but still rooted in medieval corporate representation. The City also maintains the office of the Remembrancer, a centuries old official who sits inside Parliament to monitor legislation affecting the City’s interests. And the famous ritual where the monarch pauses at the City’s boundary to be greeted by the Lord Mayor is a surviving symbol of those ancient arrangements, not a legal limit on royal authority. Today, under U.K. law, the City is fully subject to parliamentary sovereignty. Acts like the Local Government Act 1972 and the Representation of the People Acts apply there, and during the U.K.’s membership in the EU, EU law applied equally to the City.
Even so, the City feels distinct because its institutions predate the modern state, and Parliament has historically chosen to respect those ancient liberties rather than rewrite them. When London underwent its Big Bang deregulation in 1986 and transformed into one of the world’s most global financial centers, the City of London Corporation, the same corporate body shaped by documents stretching back to 1067 continued to govern the Square Mile. That continuity creates the impression that the City wasn’t created by the British state but absorbed into it, carrying its older wiring into a very different era.
This is the context behind Werner’s comments. The City isn’t separate from Britain, but it is one of the oldest components of Britain, a place where medieval charters, imperial finance, and modern global markets sit on top of one another, still shaping how power works inside the U.K. today.
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Where Medieval Power Meets Modern Finance And The Untold Story of the City of London
Werner’s point resonates because the City of London really does sit inside the U.K. with a political and legal structure unlike anything else in the country. Its odd status isn’t modern at all, it’s the product of a series of agreements that go back nearly a thousand years. After the Norman Conquest, William I issued a charter in 1067 guaranteeing that London’s citizens could keep their ancient laws and customs. That single act effectively recognized the City as a semi autonomous community inside the kingdom at a time when royal authority was consolidating everywhere else. In 1215, Magna Carta singled out the City explicitly, promising it would retain all its ancient liberties and free customs. And around that same period, London secured the right to elect its own mayor, a privilege no other English town had. These weren’t symbolic flourishes; they created a civic identity that endured through dynasties, civil wars, imperial expansion, and the rise of the modern British state.
Those liberties also positioned the City to become the country’s financial engine. By the late 1600s, after the Glorious Revolution reshaped the constitutional order, money and politics in England were fused more tightly than ever. In 1694, City merchants founded the Bank of England to finance government debt, marking the beginning of Britain’s permanent national debt and the architecture of modern public finance. As the empire expanded, the City became the clearinghouse of global commerce, all while retaining its unusual governance as a medieval municipal corporation run by livery companies and business interests rather than a typical democratic electorate. When Werner says the U.K. doesn’t have finance; the City of London has it, he is pointing to this long trajectory. Britain’s financial power grew through the City’s institutions rather than through Westminster, giving the Square Mile a center of gravity that sits somewhat apart from the rest of the country.
Why It Still Feels Separate And What the Law Says Today
The City’s modern structure reinforces this older story. It is still the only jurisdiction in the U.K. where businesses have formal voting power in local elections, a system updated in 2002 but still rooted in medieval corporate representation. The City also maintains the office of the Remembrancer, a centuries old official who sits inside Parliament to monitor legislation affecting the City’s interests. And the famous ritual where the monarch pauses at the City’s boundary to be greeted by the Lord Mayor is a surviving symbol of those ancient arrangements, not a legal limit on royal authority. Today, under U.K. law, the City is fully subject to parliamentary sovereignty. Acts like the Local Government Act 1972 and the Representation of the People Acts apply there, and during the U.K.’s membership in the EU, EU law applied equally to the City.
Even so, the City feels distinct because its institutions predate the modern state, and Parliament has historically chosen to respect those ancient liberties rather than rewrite them. When London underwent its Big Bang deregulation in 1986 and transformed into one of the world’s most global financial centers, the City of London Corporation, the same corporate body shaped by documents stretching back to 1067 continued to govern the Square Mile. That continuity creates the impression that the City wasn’t created by the British state but absorbed into it, carrying its older wiring into a very different era.
This is the context behind Werner’s comments. The City isn’t separate from Britain, but it is one of the oldest components of Britain, a place where medieval charters, imperial finance, and modern global markets sit on top of one another, still shaping how power works inside the U.K. today.
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App Economy Insights
RT @EconomyApp: Did you follow the big stories this week?
🥽 $META Meta slashes the Metaverse
📶 $MRVL Marvell bets $3B on Celestial AI
☁️ $CRM Salesforce proves agents are real
See the charts & full breakdown 👇
https://t.co/UqmEmlEdzS
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RT @EconomyApp: Did you follow the big stories this week?
🥽 $META Meta slashes the Metaverse
📶 $MRVL Marvell bets $3B on Celestial AI
☁️ $CRM Salesforce proves agents are real
See the charts & full breakdown 👇
https://t.co/UqmEmlEdzS
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Offshore
Video
EndGame Macro
Where Medieval Power Meets Modern Finance And The Untold Story of the City of London
@scientificecon point resonates because the City of London really does sit inside the U.K. with a political and legal structure unlike anything else in the country. Its odd status isn’t modern at all, it’s the product of a series of agreements that go back nearly a thousand years. After the Norman Conquest, William I issued a charter in 1067 guaranteeing that London’s citizens could keep their ancient laws and customs. That single act effectively recognized the City as a semi autonomous community inside the kingdom at a time when royal authority was consolidating everywhere else. In 1215, Magna Carta singled out the City explicitly, promising it would retain all its ancient liberties and free customs. And around that same period, London secured the right to elect its own mayor, a privilege no other English town had. These weren’t symbolic flourishes; they created a civic identity that endured through dynasties, civil wars, imperial expansion, and the rise of the modern British state.
Those liberties also positioned the City to become the country’s financial engine. By the late 1600s, after the Glorious Revolution reshaped the constitutional order, money and politics in England were fused more tightly than ever. In 1694, City merchants founded the Bank of England to finance government debt, marking the beginning of Britain’s permanent national debt and the architecture of modern public finance. As the empire expanded, the City became the clearinghouse of global commerce, all while retaining its unusual governance as a medieval municipal corporation run by livery companies and business interests rather than a typical democratic electorate. When Werner says the U.K. doesn’t have finance; the City of London has it, he is pointing to this long trajectory. Britain’s financial power grew through the City’s institutions rather than through Westminster, giving the Square Mile a center of gravity that sits somewhat apart from the rest of the country.
Why It Still Feels Separate And What the Law Says Today
The City’s modern structure reinforces this older story. It is still the only jurisdiction in the U.K. where businesses have formal voting power in local elections, a system updated in 2002 but still rooted in medieval corporate representation. The City also maintains the office of the Remembrancer, a centuries old official who sits inside Parliament to monitor legislation affecting the City’s interests. And the famous ritual where the monarch pauses at the City’s boundary to be greeted by the Lord Mayor is a surviving symbol of those ancient arrangements, not a legal limit on royal authority. Today, under U.K. law, the City is fully subject to parliamentary sovereignty. Acts like the Local Government Act 1972 and the Representation of the People Acts apply there, and during the U.K.’s membership in the EU, EU law applied equally to the City.
Even so, the City feels distinct because its institutions predate the modern state, and Parliament has historically chosen to respect those ancient liberties rather than rewrite them. When London underwent its Big Bang deregulation in 1986 and transformed into one of the world’s most global financial centers, the City of London Corporation, the same corporate body shaped by documents stretching back to 1067 continued to govern the Square Mile. That continuity creates the impression that the City wasn’t created by the British state but absorbed into it, carrying its older wiring into a very different era.
This is the context behind Werner’s comments. The City isn’t separate from Britain, but it is one of the oldest components of Britain, a place where medieval charters, imperial finance, and modern global markets sit on top of one another, still shaping how power works inside the U.K. today.
tweet
Where Medieval Power Meets Modern Finance And The Untold Story of the City of London
@scientificecon point resonates because the City of London really does sit inside the U.K. with a political and legal structure unlike anything else in the country. Its odd status isn’t modern at all, it’s the product of a series of agreements that go back nearly a thousand years. After the Norman Conquest, William I issued a charter in 1067 guaranteeing that London’s citizens could keep their ancient laws and customs. That single act effectively recognized the City as a semi autonomous community inside the kingdom at a time when royal authority was consolidating everywhere else. In 1215, Magna Carta singled out the City explicitly, promising it would retain all its ancient liberties and free customs. And around that same period, London secured the right to elect its own mayor, a privilege no other English town had. These weren’t symbolic flourishes; they created a civic identity that endured through dynasties, civil wars, imperial expansion, and the rise of the modern British state.
Those liberties also positioned the City to become the country’s financial engine. By the late 1600s, after the Glorious Revolution reshaped the constitutional order, money and politics in England were fused more tightly than ever. In 1694, City merchants founded the Bank of England to finance government debt, marking the beginning of Britain’s permanent national debt and the architecture of modern public finance. As the empire expanded, the City became the clearinghouse of global commerce, all while retaining its unusual governance as a medieval municipal corporation run by livery companies and business interests rather than a typical democratic electorate. When Werner says the U.K. doesn’t have finance; the City of London has it, he is pointing to this long trajectory. Britain’s financial power grew through the City’s institutions rather than through Westminster, giving the Square Mile a center of gravity that sits somewhat apart from the rest of the country.
Why It Still Feels Separate And What the Law Says Today
The City’s modern structure reinforces this older story. It is still the only jurisdiction in the U.K. where businesses have formal voting power in local elections, a system updated in 2002 but still rooted in medieval corporate representation. The City also maintains the office of the Remembrancer, a centuries old official who sits inside Parliament to monitor legislation affecting the City’s interests. And the famous ritual where the monarch pauses at the City’s boundary to be greeted by the Lord Mayor is a surviving symbol of those ancient arrangements, not a legal limit on royal authority. Today, under U.K. law, the City is fully subject to parliamentary sovereignty. Acts like the Local Government Act 1972 and the Representation of the People Acts apply there, and during the U.K.’s membership in the EU, EU law applied equally to the City.
Even so, the City feels distinct because its institutions predate the modern state, and Parliament has historically chosen to respect those ancient liberties rather than rewrite them. When London underwent its Big Bang deregulation in 1986 and transformed into one of the world’s most global financial centers, the City of London Corporation, the same corporate body shaped by documents stretching back to 1067 continued to govern the Square Mile. That continuity creates the impression that the City wasn’t created by the British state but absorbed into it, carrying its older wiring into a very different era.
This is the context behind Werner’s comments. The City isn’t separate from Britain, but it is one of the oldest components of Britain, a place where medieval charters, imperial finance, and modern global markets sit on top of one another, still shaping how power works inside the U.K. today.
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EndGame Macro
The Banking System Is Still Expanding But The Shape of That Expansion Is the Red Flag
The newest H.8 release is one of those reports that looks calm if you only skim the top line. Bank credit is growing, deposits are coming in, and nothing jumps out as an immediate crisis. But the moment you start looking at where the lending is happening and where it isn’t, the tone changes. This is a banking system still moving forward, but in a way that feels late cycle, not early cycle.
The Real Economy Is Losing Access to Credit
Commercial and industrial lending is soft across the board. A year ago, big banks were holding around $2.26 trillion in C&I loans. Now they’re closer to $2.15 trillion. At the system level, C&I barely moved, drifting from $2.784T to $2.692T. That is not a picture of businesses gearing up for expansion. It’s the opposite…businesses aren’t borrowing for inventories, for payroll, for growth. They’re holding back.
Construction and land development lending tells the same story. It has slipped from roughly $481B to the low $450B range. Developers are always early cycle barometers: they don’t borrow when they don’t like the demand outlook.
And consumer credit? Also down year over year, dropping from about $1.925T to $1.846T. Credit card balances inch up, but total consumer credit weakens. That usually means households aren’t comfortable stretching further, not because life is cheap, but because budgets are tight.
Put those together and you get a simple truth…households, businesses, and builders are all stepping back at the same time. That’s not what expanding cycles look like.
The Credit Boom Is Happening… Just Not In the Real Economy
Now the part that really matters: “All Other Loans and Leases.” This category jumps from about $2.20T to $2.91T in a year. Inside it, lending to non depository financial institutions goes from $1.12T to roughly $1.71T and keeps rising weekly.
That is a huge shift. Banks aren’t lending to firms that make things, build things, or hire people. They’re lending to the financial ecosystem of private credit funds, securities lenders, mortgage intermediaries, hedge funds, private equity structures.
This is what late cycle credit looks like. The real economy slows, bank appetite for risk migrates toward financial players, and leverage rises in places that don’t show up in traditional economic indicators. It keeps asset prices afloat longer than fundamentals justify, but it also creates the kind of conditions where a shock can travel fast.
Liquidity Buffers Are Thinning
Cash assets dropping from $3.28T to around $3.02T is not nothing. Banks are holding less liquidity while expanding credit especially to leveraged financial institutions. Deposits are up slightly, borrowings are drifting down, but the shrinking cash cushion makes the system more sensitive to funding stress.
It’s not a crisis signal, but it’s not the profile of a system preparing for stronger growth either. It’s a system optimizing liquidity because the real economy isn’t giving it enough profitable lending opportunities.
My Read
This isn’t a banking crisis report. It’s a slowdown is already underway report. And the pattern is incredibly clear that credit is still growing, but it’s flowing into the financial economy, not the real one.
C&I weak. Construction slipping. Consumer credit soft. Meanwhile loans to financial intermediaries surge.
That’s how you get a world where markets look stable while fundamentals fade. It’s how late cycle expansions turn into early cycle contractions…quietly, in the credit data, long before it hits the headlines.
The H.8 is telling you something simple and important…The real economy is cooling, and the credit system knows it.
Now available: Weekly data on the H.8 release, Assets and Liabilities of Commercial Banks in the United States #FedData https://t.co/WeJhdaAjBV - Federal Reserve tweet
The Banking System Is Still Expanding But The Shape of That Expansion Is the Red Flag
The newest H.8 release is one of those reports that looks calm if you only skim the top line. Bank credit is growing, deposits are coming in, and nothing jumps out as an immediate crisis. But the moment you start looking at where the lending is happening and where it isn’t, the tone changes. This is a banking system still moving forward, but in a way that feels late cycle, not early cycle.
The Real Economy Is Losing Access to Credit
Commercial and industrial lending is soft across the board. A year ago, big banks were holding around $2.26 trillion in C&I loans. Now they’re closer to $2.15 trillion. At the system level, C&I barely moved, drifting from $2.784T to $2.692T. That is not a picture of businesses gearing up for expansion. It’s the opposite…businesses aren’t borrowing for inventories, for payroll, for growth. They’re holding back.
Construction and land development lending tells the same story. It has slipped from roughly $481B to the low $450B range. Developers are always early cycle barometers: they don’t borrow when they don’t like the demand outlook.
And consumer credit? Also down year over year, dropping from about $1.925T to $1.846T. Credit card balances inch up, but total consumer credit weakens. That usually means households aren’t comfortable stretching further, not because life is cheap, but because budgets are tight.
Put those together and you get a simple truth…households, businesses, and builders are all stepping back at the same time. That’s not what expanding cycles look like.
The Credit Boom Is Happening… Just Not In the Real Economy
Now the part that really matters: “All Other Loans and Leases.” This category jumps from about $2.20T to $2.91T in a year. Inside it, lending to non depository financial institutions goes from $1.12T to roughly $1.71T and keeps rising weekly.
That is a huge shift. Banks aren’t lending to firms that make things, build things, or hire people. They’re lending to the financial ecosystem of private credit funds, securities lenders, mortgage intermediaries, hedge funds, private equity structures.
This is what late cycle credit looks like. The real economy slows, bank appetite for risk migrates toward financial players, and leverage rises in places that don’t show up in traditional economic indicators. It keeps asset prices afloat longer than fundamentals justify, but it also creates the kind of conditions where a shock can travel fast.
Liquidity Buffers Are Thinning
Cash assets dropping from $3.28T to around $3.02T is not nothing. Banks are holding less liquidity while expanding credit especially to leveraged financial institutions. Deposits are up slightly, borrowings are drifting down, but the shrinking cash cushion makes the system more sensitive to funding stress.
It’s not a crisis signal, but it’s not the profile of a system preparing for stronger growth either. It’s a system optimizing liquidity because the real economy isn’t giving it enough profitable lending opportunities.
My Read
This isn’t a banking crisis report. It’s a slowdown is already underway report. And the pattern is incredibly clear that credit is still growing, but it’s flowing into the financial economy, not the real one.
C&I weak. Construction slipping. Consumer credit soft. Meanwhile loans to financial intermediaries surge.
That’s how you get a world where markets look stable while fundamentals fade. It’s how late cycle expansions turn into early cycle contractions…quietly, in the credit data, long before it hits the headlines.
The H.8 is telling you something simple and important…The real economy is cooling, and the credit system knows it.
Now available: Weekly data on the H.8 release, Assets and Liabilities of Commercial Banks in the United States #FedData https://t.co/WeJhdaAjBV - Federal Reserve tweet
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EndGame Macro
Velocity Has Stopped Climbing That’s the Pause Before the Verdict
M2 velocity jumping off the COVID lows made sense because money that had been parked finally started moving, people spent down excess savings, and nominal GDP adjusted to a higher price world. By mid 2024, though, that catch up phase was done. QT had been draining reserves for two years, policy was still tight in real terms even after the September and October cuts, and households were feeling the grind of higher prices and higher rates. In that environment, every paycheck still moves quickly through the system, but there isn’t a new wave of risk taking to push velocity higher. So it flattens. Not because nothing is happening, but because spending has shifted from burst of demand to keeping up with the bills.
That plateau is the monetary reflection of the broader macro mood. Growth hasn’t collapsed, but it’s not accelerating. Banks are still lending, but they’re pulling back from real economy credit and leaning more into lending to financial intermediaries. Households are turning over money to cover living costs, not because they’re flush.
What If Velocity Rolls Over From Here?
This is where the long term chart matters. Look back across the last 60 years and you see a clear pattern that when M2 velocity turns down decisively, it almost always lines up with recessions or sharp slowdowns. The late 80s to early 90s fade, the slide after the dot com peak, the big collapse around 2008, the plunge into 2020 each roll over in velocity came with a period where nominal GDP fell behind the existing money stock and the economy downshifted hard.
If today’s plateau breaks lower, you’re not just talking about a small wiggle in a ratio. You’re talking about a world where…
• households stop even the churn spending and start hoarding again;
• businesses cut back further on borrowing and investment;
• banks see less loan demand and more precautionary cash;
• nominal GDP slows relative to the money base, which is how you slide from disinflation toward outright recession.
Because velocity is already low by historical standards, another leg down from here tends to mean stress, not comfort. The Fed would almost certainly keep leaning into more cuts and probably reopen the door to some form of balance sheet support. Long duration assets might catch a bid on the rate side, but that’s the kind of rally you get when earnings, employment, and credit quality are all weakening underneath.
So the flat stretch since mid 2024 is the hinge. As long as velocity holds sideways, the story is tired cycle, but still moving. If it rolls over the way it has before every major downturn, the message flips…the system isn’t just catching its breath, it’s running out of it.
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Velocity Has Stopped Climbing That’s the Pause Before the Verdict
M2 velocity jumping off the COVID lows made sense because money that had been parked finally started moving, people spent down excess savings, and nominal GDP adjusted to a higher price world. By mid 2024, though, that catch up phase was done. QT had been draining reserves for two years, policy was still tight in real terms even after the September and October cuts, and households were feeling the grind of higher prices and higher rates. In that environment, every paycheck still moves quickly through the system, but there isn’t a new wave of risk taking to push velocity higher. So it flattens. Not because nothing is happening, but because spending has shifted from burst of demand to keeping up with the bills.
That plateau is the monetary reflection of the broader macro mood. Growth hasn’t collapsed, but it’s not accelerating. Banks are still lending, but they’re pulling back from real economy credit and leaning more into lending to financial intermediaries. Households are turning over money to cover living costs, not because they’re flush.
What If Velocity Rolls Over From Here?
This is where the long term chart matters. Look back across the last 60 years and you see a clear pattern that when M2 velocity turns down decisively, it almost always lines up with recessions or sharp slowdowns. The late 80s to early 90s fade, the slide after the dot com peak, the big collapse around 2008, the plunge into 2020 each roll over in velocity came with a period where nominal GDP fell behind the existing money stock and the economy downshifted hard.
If today’s plateau breaks lower, you’re not just talking about a small wiggle in a ratio. You’re talking about a world where…
• households stop even the churn spending and start hoarding again;
• businesses cut back further on borrowing and investment;
• banks see less loan demand and more precautionary cash;
• nominal GDP slows relative to the money base, which is how you slide from disinflation toward outright recession.
Because velocity is already low by historical standards, another leg down from here tends to mean stress, not comfort. The Fed would almost certainly keep leaning into more cuts and probably reopen the door to some form of balance sheet support. Long duration assets might catch a bid on the rate side, but that’s the kind of rally you get when earnings, employment, and credit quality are all weakening underneath.
So the flat stretch since mid 2024 is the hinge. As long as velocity holds sideways, the story is tired cycle, but still moving. If it rolls over the way it has before every major downturn, the message flips…the system isn’t just catching its breath, it’s running out of it.
U.S. M2 Money Supply hits new all-time high of $22.3 Trillion 🤑📈🥳 https://t.co/nYryFFj3Vk tweet
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EndGame Macro
These default rates are trailing 12 month figures for large corporate borrowers, the group with the most tools to avoid showing distress. They can refinance, extend maturities, negotiate covenant waivers, or slide problems into private credit vehicles that don’t register as defaults on these public datasets. Because it’s a 12 month rolling window, the line mostly reflects the last wave of defaults aging out of the calculation, not the current state of the credit cycle. In practice, corporate default data is usually 6 to 12 months behind reality, and sometimes as much as 18 months behind the earliest signs of stress.
Meanwhile, the parts of the system that crack first including autos, credit cards, student loans, and commercial real estate are all moving the other way. Delinquencies are rising. Office distress is climbing. Lower income borrowers and subprime consumers are feeling real strain. That’s the ground truth. The chart looks calm only because the pressure hasn’t reached the part of the credit market that shows up in those numbers but it’s already visible everywhere else.
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These default rates are trailing 12 month figures for large corporate borrowers, the group with the most tools to avoid showing distress. They can refinance, extend maturities, negotiate covenant waivers, or slide problems into private credit vehicles that don’t register as defaults on these public datasets. Because it’s a 12 month rolling window, the line mostly reflects the last wave of defaults aging out of the calculation, not the current state of the credit cycle. In practice, corporate default data is usually 6 to 12 months behind reality, and sometimes as much as 18 months behind the earliest signs of stress.
Meanwhile, the parts of the system that crack first including autos, credit cards, student loans, and commercial real estate are all moving the other way. Delinquencies are rising. Office distress is climbing. Lower income borrowers and subprime consumers are feeling real strain. That’s the ground truth. The chart looks calm only because the pressure hasn’t reached the part of the credit market that shows up in those numbers but it’s already visible everywhere else.
Default Rates Are Falling
The bottom line is that the US economy remains incredibly resilient. -Torsten at Apollo https://t.co/9yYSvggVVH tweet
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EndGame Macro
The near term forward spread is basically the bond market’s instinct about where short term rates are headed. When it drops below zero, it means investors expect the Fed to be cutting in the future, not because things are going great, but because policy has become tight enough that something eventually gives. Historically, that has lined up well with recessions because the Fed rarely cuts unless growth or inflation cools hard enough to force their hand.
The curve didn’t break this cycle, it simply fired early. Rates went from zero to restrictive at a speed we haven’t seen in decades, so the bond market started pricing future easing almost immediately. But the economy didn’t roll over on cue because households, businesses, and banks entered the tightening phase with more buffers than usual with stronger balance sheets, longer dated debt, and a labor market that stayed tight. Instead of a clean downturn, we’ve lived through a long, uneven softening with housing first, then manufacturing, with services keeping the top line numbers afloat.
Is the Signal Still Useful?
Yes, but not as a stopwatch. A negative spread still tells you the Fed has gone far enough that the next meaningful move in policy is lower. What it doesn’t tell you is why those cuts arrive. They can come because the economy breaks, or because inflation falls enough to give the Fed breathing room. Right now, the spread is hovering closer to zero, which many people read as problem solved, but it can also mean the market thinks the first cut is simply getting closer.
So the indicator hasn’t lost its edge, it just can’t compress an unusually complicated cycle into a simple timeline. It’s warning about the same thing it always warns about…policy is tight, and easing is the next chapter. The rest of the story depends on how the stress building in credit, lending, and consumer finances finally shows up in the broader data.
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The near term forward spread is basically the bond market’s instinct about where short term rates are headed. When it drops below zero, it means investors expect the Fed to be cutting in the future, not because things are going great, but because policy has become tight enough that something eventually gives. Historically, that has lined up well with recessions because the Fed rarely cuts unless growth or inflation cools hard enough to force their hand.
The curve didn’t break this cycle, it simply fired early. Rates went from zero to restrictive at a speed we haven’t seen in decades, so the bond market started pricing future easing almost immediately. But the economy didn’t roll over on cue because households, businesses, and banks entered the tightening phase with more buffers than usual with stronger balance sheets, longer dated debt, and a labor market that stayed tight. Instead of a clean downturn, we’ve lived through a long, uneven softening with housing first, then manufacturing, with services keeping the top line numbers afloat.
Is the Signal Still Useful?
Yes, but not as a stopwatch. A negative spread still tells you the Fed has gone far enough that the next meaningful move in policy is lower. What it doesn’t tell you is why those cuts arrive. They can come because the economy breaks, or because inflation falls enough to give the Fed breathing room. Right now, the spread is hovering closer to zero, which many people read as problem solved, but it can also mean the market thinks the first cut is simply getting closer.
So the indicator hasn’t lost its edge, it just can’t compress an unusually complicated cycle into a simple timeline. It’s warning about the same thing it always warns about…policy is tight, and easing is the next chapter. The rest of the story depends on how the stress building in credit, lending, and consumer finances finally shows up in the broader data.
We don't hear much about the near-term forward spread (3m yield - expected 3m yield in 18m). This was supposedly the best yield curve predictor of recession, but as you can see it's mostly been negative since 2022 with no recession. Triggered too early or no longer useful? https://t.co/93btBYkb2D tweet