What really happened to the credit cycle?

CREDIT CYCLE

Jon Mawby, manager of the GLG Strategic Bond fund, says since the introduction of unconventional monetary policy, the once familiar credit cycle has ceased to exist.

Everything in the financial world traditionally moves in cycles. For many years, the economic cycle drove the interest rate cycle which, in turn, drove the credit cycle – both in terms of demand for credit and relative yields. In the 1980s, the running order was effectively changed when the then Federal Reserve chairman, Alan Greenspan, began to use monetary policy as a pre-emptive, rather than reactive, tool. By luck or design, the period that followed will go down in history as ‘the great moderation’, in which interest rates moved progressively into a lower range as inflation became...