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Central bank assets
0
2
4
6
8
10
2006 2007 2008 2009 2010 2011 2012 2013
Bank of England Bank of Japan
U.S. Federal Reserve European Central Bank US$ trillions
Source: Datastream.
Central bank target interest rates in advanced countries
remain low
Source: Bloomberg.
0
1
2
3
4
5
6
2007 2008 2009 2010 2011 2012 2013 2014
Policy rate, percent
United Kingdom
Eurozone
Japan
United States
Global real short-term interest rates
Sources: Datastream, IMF, Milken Institute. Note: 3-month interest rates: Canada, China, France, Germany, Italy, Japan, United Kingdom, United States. Weighted by GDP.
-3
-2
-1
0
1
2
3
4
5
1996 1998 2000 2002 2004 2006 2008 2010 2012 2013 Q4
3-month real interest rate, percent
Real short-term interest rates
Sources: Datastream, OECD Statistics, Oxford Economics.
Percent
-6
-4
-2
0
2
4
6
8
10
12
1998 2002 2006 2010 2013 Q4
China Japan U.S. Eurozone UK Percent
A reduction in the Fed’s monthly asset purchases Change in Federal Reserve assets
-60
-40
-20
0
20
40
60
80
100
120
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14
US$ billions
Source: Federal Reserve Bank of St. Louis.
Monetary base and velocity of money United States
0
4
8
12
16
20
0
1
2
3
4 US$ trillions GDP/Money-base
Monetary base (left axis)
Monetary base velocity (right axis)
Sources: Federal Reserve Bank of St. Louis, U.S. Bureau of Labor Statistics and the Milken Institute.
10-year U.S. Treasury yield
Source: Bloomberg.
0
2
4
6
8
10
12
14
16
18
1964 1971 1978 1985 1992 1999 2006 2013
Percent
Average: 6.6 percent
0
100
200
300
400
500
600
700
2006 2007 2008 2009 2010 2011 2012 2013 2014
Basis points
A rated
Source: Bloomberg.
Corporate bond spreads near lows Corporate bond spreads over U.S. Treasuries
BBB rated
Global inflation
-2
0
2
4
6
8
10
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
World
Headline inflation, percent
Advanced economies
Emerging market and developing countries
Source: IMF WEO.
Unemployment remains high in Eurozone
0
2
4
6
8
10
12
14
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Unemployment rate, percent
Japan
U.K.
Source: Eurostat.
Eurozone
U.S.
60
70
80
90
100
110
120
2011 2012 2013 2014
US$ per domestic currency unit, index (Jan 2011 = 100)
Thai baht Russian ruble
Brazilian real
Indian rupee
Source: Bloomberg.
Emerging market currencies depreciate on taper talk
Cliff Noreen’s slides
Corporate Profits at All Time High
Source: Federal Reserve
1973 - 2013 As of December, 2013
14/719
0
500
1,000
1,500
2,000
($ b
illi
on
)
Recessions U.S. Real After Tax Corporate Profits
$1.9T
S&P 500 Price/Earnings Ratio
Source: Bloomberg
1974 - 2014 As of April, 2014
14/719
5X
10X
15X
20X
25X
30X
S&P
Tra
ilin
g P
/E R
atio
Price/Earnings
17.2X
16.25X
Investment Grade Leverage
Source: BAML
2006 - 2014 As of March, 2014
14/719
1.5x
1.7x
1.9x
2.1x
2.3x
2006 2008 2010 2012 2014
Deb
t/E
BIT
DA
US IG Leverage
Investment Grade Interest Coverage
Source: BAML
2006 - 2014 As of March, 2014
14/719
10x
11x
12x
13x
14x
2006 2008 2010 2012 2014
EB
ITD
A/I
nte
rest
Exp
ense
US IG Coverage Ratio
High Yield Leverage
Source: BAML
2006 - 2014 As of March, 2014
14/719
3.0x
3.4x
3.8x
4.2x
4.6x
5.0x
2006 2008 2010 2012 2014
Deb
t/E
BIT
DA
US HY Leverage
High Yield Interest Rate Coverage
Source: BAML
2006 - 2014 As of March, 2014
14/719
2.5x
3.0x
3.5x
4.0x
2006 2008 2010 2012 2014
EB
ITD
A/I
nte
rest
Exp
ense
US HY Coverage Ratio
U.S. High Yield Issuance
Source: S&P
2006 - 2014 As of March, 2014
14/719
0
100
200
300
400
500
600
700
2006 2007 2008 2009 2010 2011 2012 2013 2014YTD
($ b
illi
on
s)
Bond Issuance Leveraged Loan Issuance
U.S. High Yield BOND Issuance by Rating
Source: S&P
2007 - 2014 As of March, 2014
14/719
18% 20%32% 27% 30% 27% 33% 35%
43% 44%
56%55% 52% 55% 45% 45%
40% 36%
12% 18% 18% 19% 23% 20%
0%
25%
50%
75%
100%
2007 2008 2009 2010 2011 2012 2013 1Q14
BB+ to BB- B+ to B- CCC
U.S. High-Yield LOAN Issuance by Rating
Source: S&P
2007 - 2014 As of March, 2014
14/719
41%
69% 67%58% 56%
48% 42%32%
53%
29% 30% 41% 43%48% 54%
60%
6% 2% 3% 1% 1% 4% 4% 8%
0%
25%
50%
75%
100%
2007 2008 2009 2010 2011 2012 2013 1Q14
BB+ to BB- B+ to B- CCC
U.S. High-Yield BOND Issuance by Purpose
Source: JP Morgan
2004 - 2014 As of March, 2014
14/719
0%
25%
50%
75%
100%
2004 2006 2008 2010 2012 YTD
Per
cen
t o
f to
tal
issu
ance
Refinancing Acquisition financing
U.S. High-Yield LOAN Issuance by Purpose
Source: JP Morgan
2004 - 2014 As of March, 2014
14/719
0%
20%
40%
60%
80%
2004 2006 2008 2010 2012 YTD
Per
cen
t o
f to
tal
issu
ance
Refinancing & Repricing Acquisition financing
New Issue PIK Volume as % of Issuance
Source: S&P
2007 - 2014 As of March, 2014
14/719
13.7%
19.9%
0.9% 0.2%1.8% 1.9%
3.7%2.5%
0%
5%
10%
15%
20%
2007 2008 2009 2010 2011 2012 2013 YTD
PIK/Toggle as % of Total Issuance
High Yield Default Rates
Source: Credit Suisse
2004 - 2014 As of March, 2014
14/719
0
2
4
6
8
10
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Def
ault
s %
HY Bonds Leveraged loans
U.S. Investment Grade Corporate Bond Spread
Source: Bloomberg
1994 - 2014 As of April 23, 2014
14/719
00
175
350
525
700
1994 1998 2002 2006 2010 2014
Bas
is P
oin
ts
Recessions U.S. Investment Grade Average
101
135
U.S. High Yield Corporate Bond Spread
Source: Bloomberg
1994 - 2014 As of April 23, 2014
14/719
00
400
800
1,200
1,600
2,000
1994 1998 2002 2006 2010 2014
Bas
is P
oin
ts
Recessions U.S. High Yield Average
523
343
Primary Dealer Positions
Source: Bloomberg, MarketAxxes, Babson Capital
2004- 2014 As of April, 2014
14/719
0
50
100
150
200
250
2004 2006 2008 2010 2012 2014
($b
illi
on
s)
($billions) Apr-13 Apr-14IG < 1 year 3.1 1.7
IG > 1 Year 11.3 9.4
High Yield 7.4 6.5