Our Perspective

Nov 11, 2024

Conceptually it is the difference between the rate one would seek in lending to a bank  versus the sovereign

Bank lending rates can be replicated using swap rates and hence are essentially a derivative

lending to sovereign of course requires balance sheet

so if  swap rates are in -ive territory, it indicates balance sheet stress

of course, central bank can come in and relieve

so you can get more yield lending to sovereign

because that would involve tying up balance sheet

Morgan Stanley coined the term “rent on balance sheet”  in  2009

For background please refer to links:

https://research.sebgroup.com/macro-ficc/reports/44513

https://research.sebgroup.com/macro-ficc/reports/50753