U.S. margin debt hits $1.5 trillion record as leverage ratio reaches all-time high
Margin debt in the United States climbed $86.5 billion in June to reach a record $1.5 trillion, with the ratio of margin debt to U.S. M2 money supply simultaneously printing an all-time high of 6.5%. Both records…
Margin debt in the United States climbed $86.5 billion in June to reach a record $1.5 trillion, with the ratio of margin debt to U.S. M2 money supply simultaneously printing an all-time high of 6.5%. Both records arrived in the same month. Together they establish the current setup: equity investors are carrying the most borrowed exposure on record in both absolute dollars and as a share of the money supply.
The print
The $86.5 billion monthly increase pushed outstanding margin debt above any prior reading. The M2 ratio is the more instructive figure. Absolute margin levels tend to expand alongside market capitalization during prolonged rallies, so a dollar record in isolation can be explained partly by a larger market. When the ratio against money supply also sets a record, the data is saying something different: borrowing has grown faster than the underlying monetary base.
At 6.5% of M2, more than six cents of every dollar in the U.S. money supply sits in leveraged equity accounts.
What the flow suggests
The figures point directly to one conclusion: investors are using record levels of borrowed money to finance equity purchases. The mechanism behind this is familiar to anyone who has watched a levered rally extend. Rising markets make margin collateral more valuable, which supports additional borrowing, which supports additional buying. The cycle is self-reinforcing on the way up.
The same cycle runs in reverse. Forced selling from margin calls does not wait for orderly price discovery. It hits positions that can be liquidated fastest, at whatever the market will bear. The volume of borrowed exposure sitting in equity accounts in June, by any prior measure, is the highest it has ever been.
What to watch
The July margin debt reading is the next confirmable data point. A continued increase would extend the record streak. A decline in either the absolute figure or the 6.5% M2 ratio would indicate that investors began trimming borrowed positions before the updated data reached the tape.
The June numbers stand: $1.5 trillion in margin debt, 6.5% of U.S. M2, both all-time highs.