Bank portfolio shifts from loans to government securities is an important leading indicator. Loans as a rule are more profitable than Treasuries, so banks prefer lending to portfolio investments in government bonds. During the mid-2000s, the above chart shows, bank holdings of Treasury and Agency securities fell marginally while the year-on-year growth rate of commercial and industrial loans soared above 20%. This reversed during the Great Recession.

Now the growth rate of Treasury holdings are crept back above the lending growth rate–a strong indicator of economic weakness.

(Copyright 2015 Asia Times Holdings Limited, a duly registered Hong Kong company. All rights reserved. Please contact us about sales, syndication and republishing.)

Leave a comment

Your email address will not be published. Required fields are marked *