What you’ll find here

MACRO: Delinquencies and Charge Offs

1. Delinquencies and Charge Offs in the banking loan portfolio.

2. Analysis of residential mortgage loans, collateralized mortgages, commercial and industrial loans, among others.

Technical 

Technical Analysis: Review of the financial sector from a technical perspective.

Statistical analysis focused on returns

 Returns over the past week and up to the last three months.

Statistical analysis focused on Volatility

Statistical review of volatility and the profile it is forming.

A Deep Dive into the U.S. Credit Risk Delinquency and Charge OFFs Rates by Segment

Delinquency and Charge-Offs rates across all credit types are surging.

In the previous episode , we looked at the overall state of consumer credit. If you haven’t read it yet, I suggest you do so here.

It’s important to come out of these two episodes with a clear picture of the credit situation for American consumers. If you haven’t seen the episode on consumer credit, you’re basically missing 70% of the economy — that’s how much consumption represents.

Delinquency and Charge-Offs in Mortgage Loans

This is the current trend. Due to the nature of this type of credit, looking at historical levels doesn’t make much sense, since the series would include loans issued 30 years ago. This applies to small banks.

For large banks, the trend doesn’t show a consistent growth rate. Remember, these banks have the technology, back office, and resources to run much deeper credit scoring. Basically, they take the cream of the market.

Delinquency and Charge-Offs on Loans secured by real estate.

This type of loan is backed by the asset being acquired. It’s a collateralized loan tied to the object being financed. This applies to large banks. At first glance, this is the type of credit that carries the highest cost for the borrower in the event of default, and therefore, it should be the last place where we’d expect to see delinquency rising like this.

Pay close attention to the trend break. I won’t stop repeating it—July ‘22, the month the yield curve inverted. These are borrowers on the edge. A small change in interest rates, which affects the effective rate they pay (if it’s floating), pushes them into the negative scenario of taking on debt.

Delinquency and Charge-Offs on Commercial Real State

It’s a mirror image of what we saw above. At first glance—and I include myself—you’d expect delinquency in CRE to be much higher than in residential mortgages. Yet the pattern is the same, despite these loans having clear differences when it comes to debt renegotiation. Just imagine: the last thing a bank wants post-COVID is to end up owning an office building.

Charge-off on Commercial Real Estate.

Charge-off is just a neat way of saying losses. At this stage, the bank sells off the defaulted debt, sliced up among various collection agencies that specialize in this. Maybe it’s happened to you—hopefully not. These are the ones that call you relentlessly, starting with concrete threats to your credit reputation, until they eventually offer you discounts of up to 80% on the amount owed.

Delinquency rate on business loans

The cost of defaulting for a small business is infinitely higher than for an individual. It can mean a Chapter 11 filing, with everything that entails. Basically, liquidating the company for next to nothing.

Charge-off en Business Loans

Delinquency Rates and Mortgage Rates

Of course, mortgage rates have their floor in the 30-year yield. They’re essentially a spread between that yield and the final mortgage rate. That spread is influenced by a range of factors.

Term premium, inflation expectations, perceived borrower risk, and so on.All of these feed into the spread. That’s why the mortgage rate can move even if the 30-year yield stays put.

With these rates, a real estate market with home prices at record highs and the worst affordability conditions in history. The adjustment will come through new home prices, and it should eventually reach existing home prices—minus the extra costs that mortgages carry today. 

That, of course, would push the market down in terms of prices, which is what needs to happen to break the current freeze. In turn, this will reduce individuals’ “perceived wealth,” generating consequences in other sectors, especially consumption.

Another example of the chain unifying the real economy. Everything is interconnected—just like the markets—and notice that both, the real economy and markets, the cornerstone is interest rates.

New mortgages

Who’s going to take out a mortgage at these prices? Who’s going to sell their home with a beautiful 3% fixed rate just to buy another one under today’s conditions?

Activity freezes because incentives are completely misaligned. The market is stuck—no one buys, no one sells for now….

Delinquency rates on farmland loans 

Irrelevant in terms of total volume, but it’s worth noting that this delinquency falls almost entirely on small banks. They’re the largest players in this segment due to their dominant presence in the regions where they operate.

Total credit granted by sector—the potential scale of the problem.

Technical Analysis

This is the largest difference between both indices since early March 2025.

The sample covers the last year, from August 2025. We call the equilibrium price the level with the highest liquidity and volume. You can see it in the volume profile on the right. At this price, the largest number of buyers and sellers emerged. Of course, equilibrium levels are dynamic, but they will act as support or resistance.

The market structure, with higher highs, is in jeopardy. The last high was only slightly higher. However, we have a powerful lower low — large and with volume. This was not a simple profit-taking move.

Oscillators describe a situation. Some people use them as triggers — they are not, and that is not their purpose. They simply describe the given behavior, based on the parameters you set for measurement.

Statistical Analysis of Prices

This is what we call the weekly freakies ()

Before we start a refresher: The Z-score measures how far a value is from its average, in standard deviations.Extreme levels go from 2. This means the variable is 2 standard deviations away from its average — and that’s a lot!

Statistical analysis of returns over the past three months.

XLF gained 0.88% this week, above its 52-week average weekly gain of 0.48%. However, the Z-score of 0.15 shows this move is almost in line with its usual weekly variation, meaning it’s not statistically significant or unusual.

Over longer periods, XLF shows mixed momentum:

• 4-week Z-score: -0.54 → slightly below its typical 4-week performance.

• 8-week Z-score: 0.07 → almost exactly in line with its historical 8-week average.

• 12-week Z-score: -0.71 → moderately weaker than usual over the past 12 weeks.

Overall, it’s not showing strong statistical deviations in either direction.

Sharpe Ratio (0.09): near-zero return relative to risk.
CV (5.74): very high volatility relative to average return.

A terrible investment over the past week, and poor over the last 4, 8, and 12 weeks.

Looking at the annual range (last two columns), it’s clear that this week’s return was poor. What’s notable is that it has been stuck for the past three months.

Statistical analysis of volatility

The short-term Z-scores (1w, 4w, 8w, 12w) are all close to zero, showing little deviation from their historical averages, and the current level is only 29.69% of the 52-week maximum. This combination typically signals a low-volatility environment that could precede an expansion phase if market conditions change.

This new service we’re presenting is in an exploratory phase. We expect to soon add volume to the analysis, among other things.

That’s all for today — we’ll be in touch.

Martin