Market graphic - The 2008-2010 credit cycle
Default rates are on the way up, but by how much? Ulf Erlandsson and Graham Rennison, quantitative analysts at Barclays Capital, use data on credit conditions to predict default rates and economic growth rates over the next two years of the cycle
Evidence that credit conditions are a leading indicator of the default and business cycles can be confirmed by comparing a generalised cycle for credit conditions with a generalised cycle for defaults (see chart 1). We measure credit conditions by the tightening of commercial and industrial (C&I) lending standards. A generalised cycle gives us a strong baseline case upon which we can overlay other factors that we believe will impact a cycle.
It is interesting, and important, to note the
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