Foreign media: According to Bloomberg Macro strategist Simon White, the current leverage expansion has moved beyond leverage ETF to penetration in the wider financial system along the bank balance sheet. As the cost of financing remains high, once deleveraging is activated, banks may turn from market volatility buffers to amplifiers.
Leverage ETF is just the beginning.
Retail demand for leverage ETF has risen significantly this year, especially since April, when a share of profits such as US Light Technology is expected to grow. White points out that the leverage behind this type of product comes almost exclusively from banks, which usually provide ETF with two times, three times and even higher income exposures through total income swaps.
Banks also hold the risk of hedges of cash equities and derivatives, which in turn continue to melt through the repurchase market. According to White, this means that leverage does not appear single-point, but overlaps between banks, ETFs and repurchase markets.
The hedge funds were leveraged.
White also mentioned that, at the end of last year and the beginning of this year, there was an outflow of funds and a fall in the market value of the leverage ETF, but the scale of repurchases of bank shares was still rising. In his judgement, the other type of leverage is hedge funds, which continue to be added in stock-to-stock, bond-side and swap-side transactions.
According to the data quoted, bank exposure to hedge funds has increased from about $2 trillion a few years ago to about $4.5 trillion, and the average overall leverage of hedge funds in the United States has nearly doubled since 2022. The size of the GDR deal is also estimated at about $2.4 trillion, and leverage pressure is not limited to stock markets.
Cash may not be safe.
White further integrates private credit, insurance and money market funds into the same risk chain. Moody ' s estimate is that bank loans to private credit companies amount to approximately $30 billion, which could be even larger if loans that do not take out commitments and private equity were included. The leverage of insurance companies has also increased to at least 25 years high.
Even money-market funds finance banks and traders through repurchase transactions. White argues that there is a need to focus on the cost of equity leverage financing, short-term interest rates and swap spreads; once banks contract leverage, the cost of financing increases, and scalables and additional bonds can form a chain reaction that will magnify market volatility.