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| US Bonds Review |
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America’s credit system is tightening in ways that are easy to miss unless you’re watching the data closely. The NY Fed’s rejection rate for credit applicants, which usually sits somewhere between the mid-teens and low-20% range, is now approaching 25%. This is the highest level on record. This isn’t about people being afraid to apply. It’s about people applying for auto loans, credit cards, refinances, limit increases, mortgages, and getting turned down. When one in four applicants is rejected, it usually means lenders are no longer trying to grow but are instead protecting themselves, a pattern seen before economic contractions.
The Economic Activity Composite (EAC) is weakening fast. The public is reluctant to believe that the President, The Fed, or Bitcoin will save them. Delusion typically ends badly for those not prepared for stagflationary backdrop. Please watch the Economy & Stock, US Bond, Bitcoin and numerous other Reports for further discussion in 2025 and 2026. 2026 will be challenging and interesting.
Chart 1: EAC
Stagflationary Backdrop
The rise in rejections is happening against a backdrop of worsening credit performance. Delinquencies are climbing across subprime autos, credit cards, and student loans. Recent graduates face a tough job market and slipping credit scores. Many households have been stretched thin for two years, relying on credit cards and long-term car loans while rates rose. Lenders see this stress directly in their books. At the same time, funding costs remain elevated, commercial real estate is facing its own maturity wall, and regulators have loosened rules for banks, a move that quietly signals preparation for potential stress rather than confidence in the system. This is not the moment to take risks on borderline borrowers for lenders, so standards tighten, and more applicants fall short.
A record-high rejection rate isn’t necessarily an indication of an imminent crisis (that comes elsewhere), but it is a warning. Households that have been leaning on credit to offset rising costs will run into limits sooner. Borrowers already behind won’t have options like refinancing or higher credit lines to buy time. As these constraints tighten, pressure on household cash flow feeds back into consumption and debt service. Cycles don’t always turn with dramatic events; sometimes they show up quietly, in shifts like this. A quarter of applicants being denied is a clear sign that the system is moving from expansion into defense.
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