If a study from the Bank of England is to be believed, the “nominal risk-free interest rate” has not been lower in my lifetime nor in my grandfather’s lifetime nor in his grandfather’s lifetime, and so on going back more than 30 generations. That’s got to have implications. What are they?
If they persist at this low a level for an extended period of time, the obvious implication is that everybody’s instincts will be wrong.
The first question to ask is what’s the real rate.
But secondly, when you are a sovereign operating on metered money and you suspect you are reaching debt capacity what do you do? Turn down the meter.
From the LBO world – Lenders have moved leverage up to 6-6.5x even in the middle to lower middle market. It’s being passed right through to asset sellers. Good for sellers. Bad for buyers. Eventually bad for lenders. Time to gear up the workout guys.