While we've recently written about how tight credit spreads are (and they are getting ridiculous with investment grade bonds just basis points over the risk-free T-bill rate) but that's not the entire story.
A more telling indicator for the middle market may be the Fed’s quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices. It shows the tightest lending standards since 2008, and certainly as tight as any recent non-recessionary period.
As the graph shows, loan growth tends to slow following an increase in the net percentage of banks reporting a tightening of lending standards. Aside from the COVID emergency, the last time we saw substantial net tightening of standards was before and during recessions in 2001 and 2008-09.
While we continue to see a migration of lending from banks to non-bank sponsors, banks are still a key engine of loan provision for the American economy. This is likely to be a headwind for growth over the next few quarters.
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