Section 1: Global financial

environment

Chart 1.1 International GDP growth projections

Sources: IMF World Economic Outlook and Bank calculations.

a) October 2012 and April 2013 WEO projections.

 

Chart 1.2 Market-implied default probabilities over the next five years for selected sovereign debt(a)

Sources: Markit Group Limited and Bank calculations. a) Probability of default, derived from CDS premia, from the perspective of a so-called ‘risk-neutral’ investor that is indifferent between a pay-off with certainty

and an uncertain pay-off with the same expected value. If market participants are risk-averse, these measures may overstate actual probabilities of default. A loss given default of 60% is assumed.

b) November 2012 Report.

Chart 1.3 Probability of a high-impact event in the UK financial system(a)

Sources: Bank of England Systemic Risk Surveys and Bank calculations. a) Respondents were asked for the probability of a high-impact event in the UK financial system in the short and medium term. From the 2009 H2 survey

onwards, short term was defined as 0–12 months and medium term as 1–3 years. The net percentage balance is calculated by weighting responses as follows: very high (1), high (0.5), medium (0), low (-0.5) and very low (-1). Bars show the contribution of each component to the net percentage balance.

Chart 1.4 Historical government bond yields(a)(b)(c)

Source: Global Financial Data and Bank calculations. a) Ten-year yields.b) Due to data limitations, the UK series prior to 1753 uses yields on 3% UK annuities and from 1753–1958 is compiled from yields on UK Consolidated Stock

(Consols). As Consols are undated stock, the time-series comparison is only approximate. Long-dated or perpetual government securities are also used for the German, Japanese and US series where yields on ten-year bonds are unavailable.

c) Due to data limitations, no data are shown for Germany from 1915 to 1946 or Japan from 1947 to 1948.

Chart 1.5 International ten-year spot real government bond yields(a)(b)

Sources: Bloomberg and Bank calculations. a) Zero-coupon yield. Derived from the Bank’s government liability curves.b) Series are not directly comparable as UK real rates are defined relative to RPI inflation, whereas US and euro-area real rates are defined relative to CPI and

HICP inflation respectively. In the United Kingdom, RPI inflation is generally higher than CPI inflation, which is likely to push down observed UK real rates compared with those defined relative to CPI inflation.

c) Euro-area real rates are implied from the average of German and French nominal government bond yields less euro-area inflation swap rates.

Chart 1.6 International instantaneous forward real rate term structures on 17 June(a)(b)

Sources: Bloomberg and Bank calculations. a) Zero-coupon yield. Derived from the Bank’s government liability curves.b) Series are not directly comparable as UK real rates are defined relative to RPI inflation, whereas US and euro-area real rates are defined relative to CPI and

HICP inflation respectively. In the United Kingdom, RPI inflation is generally higher than CPI inflation, which is likely to push down observed UK real rates compared with those defined relative to CPI inflation.

c) Euro-area real rates are implied from the average of German and French nominal government bond yields less euro-area inflation swap rates.

Chart 1.7 Holdings of US Treasury securities

Sources: CEIC, Federal Reserve US flow of funds, IMF currency composition of official foreign exchange reserves and Bank calculations. a) Includes holdings by state and local government, government retirement funds, government-sponsored enterprises and the Federal Reserve.b) Assumes proportion of Chinese reserves held as Treasuries is the same as the world average. Other foreign holdings are calculated as the residual

between total foreign holdings of Treasuries and the estimate of Chinese holdings.

Chart 1.8 International ten-year nominal spot government bond yields(a)

Sources: Bloomberg and Bank calculations. a) Zero-coupon yield. Derived from the Bank’s government liability curves.b) November 2012 Report.

Chart 1.9 Global asset class positioning by investment funds(a)

Source: Bank of America Merrill Lynch Global Fund Manager Survey. a) Positioning captures whether funds are overweight (positive scores) or underweight (negative scores) in each asset class relative to historical asset

allocations. Historical asset allocations are based on data since 2006 for commodities and real estate and since 2001 for equities, bonds and cash.

Chart 1.10 Flows into mutual funds investing in higher-risk asset classes

Sources: Emerging Portfolio Fund Research Global and Bank calculations. (a) Dark bars show data to end-April, while dark plus light areas show annualised data.

Chart 1.11 Composition of US prime money market funds’ exposures

Source: Crane data and Bank calculations.

a) November 2012 Report. 

Chart 1.12 International equity indices(a)

Sources: Thomson Reuters Datastream and Bank calculations. a) Denominated in units of local currency.b) November 2012 Report.

Chart 1.13 Corporate high-yield bond spreads(a)

Sources: Bank of America Merrill Lynch.

a) Option-adjusted spreads. The US dollar series refers to US dollar-denominated bonds issued in the US domestic market, while the sterling and euro series refers to bonds issued in domestic or eurobond markets in the respective currencies. The emerging markets series is calculated using bonds with a below investment grade country of risk rating that are euro or US dollar-denominated and issued in the eurobond or US domestic markets.

b) November 2012 Report.

Chart 1.14 Issuance of sub-investment grade corporate bonds by region(a)(b)

Sources: Dealogic and Bank calculations. a) Primary market issuance with an original contractual maturity or earliest call date of at least 18 months.b) ‘Emerging economies’ includes Africa, Caribbean, Indian subcontinent, Latin America, Middle East, North Asia and South East Asia.  ‘Other’ includes

Australasia and Japan.  Includes issuance in all currencies.c) Year to date.

Chart 1.15 International equity risk premia(a)

Sources: Bloomberg, Thomson Reuters Datastream and Bank calculations. a) As implied by a multi-stage dividend discount model.

Chart 1.16 Investor risk appetite and market liquidity

Sources: Bank of America Merrill Lynch Global Fund Manager Survey, Credit Suisse and Bank calculations.

a) The net percentage balance of respondents to a monthly Bank of America Merrill Lynch global survey of fund managers reporting liquidity conditions as positive.

b) Summary statistic which tracks the relative performance of safe assets versus more volatile assets, with a positive value implying strong risk appetite and a negative value implying risk aversion.

c) November 2012 Report.

Chart 1.17 Banking system reported Tier 1 capital ratios(a)(b)

Sources: SNL Financial and Bank calculations. a) End-year data.b) Aggregated Tier 1 capital divided by aggregated risk-weighted assets of selected banks and large complex financial institutions. Tier 1 capital and risk-

weighted assets data are reported on a Basel I basis for US banks. For European banks, these data are reported on a Basel II basis up to and including 2010 and on a Basel 2.5 basis thereafter.

c) UK banks and building societies included are Barclays, HSBC, LBG, Nationwide and RBS.

Chart 1.18 Contributions to the change in banking systems’ reported Tier 1 capital ratios(a)(b)

Sources: SNL Financial and Bank calculations. a) Change between end-2011 and end-2012.b) Chart shows a decomposition of changes in the weighted average Tier 1 capital ratio of selected banks and large complex financial institutions. Tier 1

capital and risk-weighted assets data are reported on a Basel I basis for US banks. For European banks, these data are reported on a Basel 2.5 basis.c) UK banks and building societies included are Barclays, HSBC, LBG, Nationwide and RBS.

Chart 1.19 Banking system reported leverage ratios(a)(b)

Sources: SNL Financial and Bank calculations. a) End-year data.b) Chart shows the average leverage — defined as total shareholders’ equity divided by total assets — of selected banks and large complex financial

institutions.c) UK banks and building societies included are Barclays, HSBC, LBG, Nationwide and RBS.

Chart 1.20 Non-performing loan ratios(a)(b)(c)

Sources: National central banks and Bank calculations. a) Data to April 2013.b) The chart shows gross non-performing loans as a share of total loans. Definitional differences of non-performing loans limit cross-country comparability.c) Loans to resident non-financial firms and households.d) The fall in the Spanish ratio in December 2012 and February 2013 is due to transfers of assets to the Asset Management Company for Assets Arising from

Bank Restructuring (‘Sareb’), which was set up to remove problematic assets from the balance sheets of Spanish banks.

Chart 1.21 Issuance of term bank senior secured and unsecured debt in public markets(a)

Source: Dealogic and Bank calculations. a) Securities with an original contractual maturity or earliest call date of at least 18 months. Includes primary market issuance only and excludes issuance

under government-guarantee schemes. Issuance is allocated to each region according to the bank’s nationality of operations listed on Dealogic. 2013 H1 data are up to and including 17 June 2013.

b) Unsecured issuance includes investment-grade and high-yield bonds and medium-term notes.c) Secured issuance includes asset-backed securities, mortgage-backed securities and covered bonds.

Chart 1.22 Major banks’ indicative senior unsecured bond spreads(a)

Source: Bloomberg, Markit Group Limited and Bank calculations. a) Constant-maturity unweighted average of secondary market spreads to mid-swaps of banks’ five-year senior unsecured bonds, where available. Where a

five-year bond is unavailable, a proxy has been constructed based on the nearest maturity of bond available for a given institution.b) European banks: BBVA, BNP Paribas, Crédit Agricole, Credit Suisse, Deutsche Bank, ING, Intesa, Rabobank, Santander, Société Générale, UBS and

UniCredit. c) UK banks: Barclays, HSBC, LBG, Nationwide, RBS and Santander UK.d) US banks: Bank of America Merrill Lynch, Citigroup, Goldman Sachs, JPMorgan, Morgan Stanley and Wells Fargo.e) November 2012 Report.

Chart 1.23 Cost of default protection for selected banking systems(a)

Source: SNL Financial, Thomson Reuters Datastream and Bank calculations. a) Average five-year CDS premia of selected banks and large complex financial institutions, weighted by assets as at end-2012.b) November 2012 Report.

Chart 1.24 Bank equity prices(a)

Sources:  Thomson Reuters Datastream and Bank calculations. a) Indices used are FTSE France banks, FTSE Germany banks, FTSE Italy banks, FTSE Spain banks, FTSE UK banks and FTSE USA banks. All indices are

denominated in US dollars.

Chart 1.25 Cumulative capital flows for selected euro-area countries(a)

Sources: Central Statistics Office, European Commission, IMF, national central banks and Bank calculations. a) Refers to Greece, Ireland, Italy, Portugal and Spain.b) Data up to March 2013 with the exception of balance of payments data for Ireland, which are to December 2012 and extrapolated thereafter.c) Claims (liabilities) incurred within the Eurosystem via TARGET2 cross-border payment flows.d) Loans disbursed under joint financing package with contributions from the European Financial Stabilisation Mechanism, the European Financial Stability

Facility, the European Stability Mechanism, individual EU members under bilateral arrangements and the IMF.

Chart 1.26 Sterling lending to UK private non-financial corporations and households(a)

Sources: Bank of England. a) Twelve-month growth in the stock of lending. Data cover sterling lending and are seasonally adjusted unless otherwise stated.b) Lending by UK-resident monetary financial institutions (MFIs), excluding the effects of securitisations and loan transfers. Includes loans and holdings of

securities.c) Lending by UK-resident MFIs and other specialist lenders. Excludes student loans.d) Sterling loans by UK-resident MFIs and related specialist mortgage lenders, excluding the effects of securitisations and loan transfers. Funding for Lending

Scheme measure. Non seasonally adjusted.

Chart 1.27 UK household secured credit availability(a)

Sources: Bank of England Credit Conditions Surveys. a) Net percentage balances are calculated by weighting together the responses of those lenders who answered the question: ‘How has the availability of

secured credit provided to households changed?’. The magenta and blue bars show the responses over the previous three months. The corresponding diamonds show the expectations over the next three months.

b) A positive balance indicates that more secured credit is available.c) The question was introduced in 2008 Q3. ‘High’ LTV ratios are defined as those above 75%.

Chart 1.28 UK corporate credit availability(a)

Sources: Bank of England Credit Conditions Surveys. a) Net percentage balances are calculated by weighting together the responses of those lenders who answered the question: ‘How has the availability of

credit changed?’. The lines show the responses over the previous three months. The corresponding diamonds show expectations over the next three months.

b) A positive (negative) balance indicates that more (less) credit is available.