Stocks just a sideshow to the real drama of bond markets

Banking’s diminished role in lending has enormous, still under-appreciated implications

Robin Wigglesworth

Another way for Bane to create financial havoc in 'The Dark Knight Rises' would have been to focus on the bond market rather than Gotham's stock exchange

When Bane attempts to cause financial carnage and bankrupt Bruce Wayne in the final instalment of Christopher Nolan’s gritty Batman trilogy, he does it by attacking the Gotham Stock Exchange. But these days the real action is in the bond market.

Equities have always commanded far more public attention than fixed income. TV networks will run daily bulletins of what happened to the Dow, the “Footsie” or Nikkei, but rarely discuss what a country’s bonds have done — let alone mention popular debt indices such as the Aggregate, EMBI or CDX. But the bond markets are where the fortunes of the global economy are forged.

Financial innovations such as junk bonds and securitisation means banks have progressively done less of the bread-and-butter lending that has characterised the industry since its roots in Renaissance Italy, and famously exemplified by James Stewart’s community banker George Bailey in It’s a Wonderful Life. Instead, borrowers are increasingly turning to bond investors for their financing.

This is a longstanding trend, but has accelerated since 2008. The financial crisis showed the perils of relying on short-term, fickle funding markets, and banks have been burdened by stricter national and supranational regulation and tougher capital requirements designed to make them safer. In practice this has pushed more lending out from the banking system and into markets. That has enormous, still under-appreciated implications for how the global financial system functions.

A report by the Bank for International Settlement details how bank loans have flatlined since the crisis even as the bond market has ballooned. Bond financing made up about 57 per cent of all global borrowing in the first quarter of 2018, up from 48 per cent in 2008 and about 44 per cent at the turn of the century.

The bank-to-bond shift is particularly stark in the US. In the 1980s, banks made almost half of all loans in the US, but today only 18 per cent of all US corporate debt is owed to banks, notes Deutsche Bank’s Torsten Slok. Meanwhile, securitisation has transformed household lending by allowing banks to package up credit card debt, car loans and mortgages and sell them to investors, further reducing the role of banks in the US. The trends are similar, if less advanced, in Europe and Asia.

This is a hugely important development that will in all likelihood continue to deepen for the foreseeable future. And there are three big, interlinked implications.

Firstly, shifting lending out of banks and into markets makes banks safer. That is positive for the overall health of the financial system — given how destructive banking crises can be — but means regulators need to do a far better job of monitoring markets for broad issues, not just specific ones. The risks haven’t gone away, they have just migrated into a different corner of the financial ecosystem.

That means the traditionally retail-oriented approach of the US Securities and Exchange Commission or the Federal Reserve’s historically academic, narrow view of the economy are inadequate to deal with market regulation in today’s world. One only sees the trees, while the other only sees the wood.

Secondly, it raises some serious questions about modern central banking. The two primary roles of central banks are to control the heat of an economy by adjusting short-term interest rates, and to act as a lender of last resort in a banking crisis. But if bond markets do most of the lending, where does that leave central banks?

Bonds are naturally influenced by the short-term cost of money dictated by central banks, but investors set market interest rates, not the monetary officials appointed by governments. And if the 10-year Treasury yield matters more than the Fed Funds rate, it means previously unconventional measures such as quantitative easing will necessarily become mainstream. It might even argue for more central banks in future recessions adopting the Bank of Japan’s “yield curve control” policy, which stipulates that it will keep the 10-year Japanese government bond yield pinned near zero.

Thirdly, while the bank-to-bond shift makes banks safer, it increases the influence of markets over the global economy, and indirectly the Fed, as the central bank with the most sway over global fixed income markets. As the BIS said in its report: “Global financing conditions have become more sensitive to developments in the bond market, and even more tightly linked to US monetary policy.”

This matters, because while banks may be safer in the next downturn, bond markets are therefore likely to be even more volatile. And that will feed back into the economy. So everyone should care more about what the bond market does, and pay less heed to the undulations of the stock market.

As Oil Plunges, Energy Junk Bonds Turn Dangerous — Again

Back in 2104 oil was falling and hundreds of billions of dollars of energy junk bonds and leveraged loans looked to be at risk. Wolf Street had this to say at the time:

Oil and Gas Bloodbath Spreads to Junk Bonds, Leveraged Loans. Defaults Next
The price of oil has plunged nearly 40% since June to $65.63, and junk bonds in the US energy sector are getting hammered, after a phenomenal boom that peaked this year. Energy companies sold $50 billion in junk bonds through October, 14% of all junk bonds issued! But junk-rated energy companies trying to raise new money to service old debt or to fund costly fracking or off-shore drilling operations are suddenly hitting resistance. 
And the erstwhile booming leveraged loans, the ugly sisters of junk bonds, are causing the Fed to have conniptions. Even Fed Chair Yellen singled them out because they involve banks and represent risks to the financial system. Regulators are investigating them and are trying to curtail them through “macroprudential” means, such as cracking down on banks, rather than through monetary means, such as raising rates. And what the Fed has been worrying about is already happening in the energy sector: leveraged loans are getting mauled. And it’s just the beginning. 
This monthly chart by S&P Capital IQ’s shows the leveraged loan index for the oil and gas sector. Earlier this year, when optimism about the US shale revolution was still defying gravity, these loans were trading at over 100 cents on the dollar. In July, when oil began to swoon, these loans fell below 100 cents on the dollar. The trend accelerated during the fall. And in November, these loans dropped to around 92 cents on the dollar.

Oil leveraged loans energy junk bonds

Nothing much came of this. Oil prices stabilized and started to rise, and the drillers went back to borrowing and pumping. The price of oil eventually rose to a hugely profitable $76/bbl, turning America’s oil patch back into a “miracle” destined to make us energy independent for eternity. And energy junk bonds were once again safe for widows and orphans.

But that only lasted a few weeks. For a variety of reasons (OPEC overproduction, US overproduction, a possibly slowing global economy) oil started falling in October.

Still, at first this was not a problem. From Bloomberg five days ago:

Junk Bonds Shrug Off Oil’s Plunge as It Hasn’t Gone Far Enough
Oil may have lost its grip on U.S. junk bonds. 
As crude fell for eight straight days through Nov. 7, the longest streak since 2014, high-yield bonds — typically influenced by the price of oil — actually gained. And further, junk debt has barely suffered a scratch as West Texas Intermediate has fallen 20 percent from a four-year high at the start of last month. 
During oil’s plunge, high yield debt dropped around 1.2 percent, while junk tied to energy lost about 2.7 percent, data compiled by Bloomberg show. A similar reaction happened during crude slumps earlier this year, even though energy accounts for about 15 percent of the U.S. high yield index. 
The muted reaction may be because junk didn’t rise as much as oil this year, and producers survived recent lean years, when crude traded as low as $26 a barrel. However, the bonds may eventually respond. 
“It may not be falling as oil goes from $75 to $60 because it didn’t really rally very much as oil went from $60 to $75,” said Spencer Cutter, Bloomberg Intelligence U.S. credit analyst. “If we start to flirt with $55, I think there is a good chance that you will see a real reaction in the bond market.”
Funny that Bloomberg’s credit analyst would mention $55, because that’s exactly where oil went today:

Oil price energy junk bonds

Now the question is, what would constitute a “real reaction” in the junk bond and leveraged loan markets? And will the impact be felt beyond the energy patch?

In any event, it’s definitely one more thing to worry about in addition to trade war, apocalyptic California fires and falling stock prices. Which means the real question is, when does the cumulative weight of all these mini-crises change market sentiment from insouciant to terrified?

Blame the Economists?

Ever since the 2008 financial crash and subsequent recession, economists have been pilloried for failing to foresee the crisis, and for not convincing policymakers of what needed to be done to address it. But the upheavals of the past decade were more a product of historical contingency than technocratic failure.

J. Bradford DeLong  


BERKELEY – Now that we are witnessing what looks like the historic decline of the West, it is worth asking what role economists might have played in the disasters of the past decade.

From the end of World War II until 2007, Western political leaders at least acted as if they were interested in achieving full employment, price stability, an acceptably fair distribution of income and wealth, and an open international order in which all countries would benefit from trade and finance. True, these goals were always in tension, such that we sometimes put growth incentives before income equality, and openness before the interests of specific workers or industries. Nevertheless, the general thrust of policymaking was toward all four objectives.

Then came 2008, when everything changed. The goal of full employment dropped off Western leaders’ radar, even though there was neither a threat of inflation nor additional benefits to be gained from increased openness. Likewise, the goal of creating an international order that serves everyone was summarily abandoned. Both objectives were sacrificed in the interest of restoring the fortunes of the super-rich, perhaps with a distant hope that the wealth would “trickle down” someday.

At the macro level, the story of the post-2008 decade is almost always understood as a failure of economic analysis and communication. We economists supposedly failed to convey to politicians and bureaucrats what needed to be done, because we hadn’t analyzed the situation fully and properly in real time.

Some economists, like Carmen M. Reinhart and Kenneth Rogoff of Harvard University, saw the dangers of the financial crisis, but greatly exaggerated the risks of public spending to boost employment in its aftermath. Others, like me, understood that expansionary monetary policies would not be enough; but, because we had looked at global imbalances the wrong way, we missed the principal source of risk – US financial mis-regulation.

Still others, like then-US Federal Reserve Chairman Ben Bernanke, understood the importance of keeping interest rates low, but overestimated the effectiveness of additional monetary-policy tools such as quantitative easing. The moral of the story is that if only we economists had spoken up sooner, been more convincing on the issues where we were right, and recognized where we were wrong, the situation today would be considerably better.

The Columbia University historian Adam Tooze has little use for this narrative. In his new history of the post-2007 era, Crashed: How a Decade of Financial Crises Changed the World, he shows that the economic history of the past ten years has been driven more by deep historical currents than by technocrats’ errors of analysis and communication.

Specifically, in the years before the crisis, financial deregulation and tax cuts for the rich had been driving government deficits and debt ever higher, while further increasing inequality. Making matters worse, George W. Bush’s administration decided to wage an ill-advised war against Iraq, effectively squandering America’s credibility to lead the North Atlantic through the crisis years.

It was also during this time that the Republican Party began to suffer a nervous breakdown. As if Bush’s lack of qualifications and former Vice President Dick Cheney’s war-mongering weren’t bad enough, the party doubled down on its cynicism. In 2008, Republicans rallied behind the late Senator John McCain’s running mate, Sarah Palin, a folksy demagogue who was even less suited for office than Bush or Cheney; and in 2010, the party was essentially hijacked by the populist Tea Party.

After the 2008 crash and the so-called Great Recession, years of tepid growth laid the groundwork for a political upheaval in 2016. While Republicans embraced a brutish, race-baiting reality-TV star, many Democrats swooned for a self-declared socialist senator with scarcely any legislative achievements to his name. “This denouement,” Tooze writes, “might have seemed a little cartoonish,” as if life was imitating the art of the HBO series “Veep.”

Of course, we have yet to mention a key figure. Between the financial crisis of 2008 and the political crisis of 2016 came the presidency of Barack Obama. In 2004, when he was still a rising star in the Senate, Obama had warned that failing to build a “purple America” that supports the working and middle classes would lead to nativism and political breakdown.

Yet, after the crash, the Obama administration had little stomach for the medicine that former President Franklin D. Roosevelt had prescribed to address problems of such magnitude. “The country needs…bold persistent experimentation,” Roosevelt said in 1932, at the height of the Great Depression. “It is common sense to take a method and try it; if it fails, admit it frankly and try another. But above all, try something.”

The fact that Obama failed to take aggressive action, despite having recognized the need for it beforehand, is a testament to Tooze’s central argument. Professional economists could not convince those in power of what needed to be done, because those in power were operating in a context of political breakdown and lost American credibility. With policymaking having been subjected to the malign influence of a rising plutocracy, economists calling for “bold persistent experimentation” were swimming against the tide – even though well-founded economic theories justified precisely that course of action.

Still, I do not find Tooze’s arguments to be as strong as he thinks they are. We economists and our theories did make a big difference. With the exception of Greece, advanced economies experienced nothing like a rerun of the Great Depression, which was a very real possibility at the height of the crisis. Had we been smarter, more articulate, and less divided and distracted by red herrings, we might have made a bigger difference. But that doesn’t mean we made no difference at all.

J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

Plan: Save Almost Everything, Spend Virtually Nothing

A group of younger workers, devotees of the FIRE movement, are seeking ways to duck mistakes made by prior generations

By Anne Tergesen and Veronica Dagher

Sylvia Hall, a 38-year-old lawyer in Seattle, plans to retire in two years.

Sylvia Hall wants to retire at age 40. Her dream has a price: brown bananas.

The 38-year-old Seattle lawyer is on a strict budget as she tries to hit her goal of amassing $2 million in assets by 2020. That means saving about 70% of her after-tax income and setting firm spending limits in every part of her life.

She looks for brown bananas and other soon-to-be discarded items from fruit and vegetable stands to help keep her grocery bills around $75 a month. She walks to work so she doesn’t have to spend money on gas. She borrows Netflix passwords from friends so she doesn’t have to spend much on entertainment.

“The idea of not having to wait to 65 to start living on my own terms appealed to me,” she said.

For a new generation of Americans, the traditional retirement age of 65 is getting old. Some of the youngest members of the U.S. workforce are saving aggressively and spending little so they can leave work decades ahead of schedule, defying the career arc that typically defines adult life.

Their reasons for flouting conventional career norms and saving at high rates range from dissatisfaction with unfulfilling work to the decline of traditional social safety nets to a desire for more economic security in an era defined by events such as the 2008 financial crisis.

Even though they are better educated than their parents and grandparents, people between 25 and 35 have less wealth than prior recent generations, and “are behind in almost every economic dimension,” said Alicia Munnell, director of the Boston College Center for Retirement Research, including earnings and debt.
They’re also watching the generation entering retirement struggle with many of the same problems. About 10,000 people turn 65 every day and many are unprepared for the years ahead. Older Americans have high average debt. Their 401(k)-type retirement funds will bring in a median income of under $8,000 a year for a 65-year-old couple.

The younger generation’s radical solution—dubbed Financial Independence, Retire Early—has spawned an ecosystem of podcasts, blogs, books, conferences and informal discussion groups. One online forum dedicated to the concept, known to its followers by the acronym “FIRE,” has more than 450,000 subscribers. 
Ms. Hall’s apartment is 400 square feet.

Ms. Hall’s apartment is 400 square feet. Photo: Matt Lutton for The Wall Street Journal 

FIRE adherents are often millennials and younger members of Generation X who have college degrees, above-average incomes and the discipline to adopt a strict do-it-yourself approach to retirement. Some say they are saving as much as three-quarters of their income, or five times the 15% savings rate conventional financial advisers often recommend, and growing their own food. Others are taking more modest measures such as living in smaller houses and driving older cars.

“It gives people more control over their lives and time,” said Grant Sabatier, 33, who writes a blog about the topic called Millennial Money. “We live in uncertain times and financial empowerment provides a path out.”

The downside of FIRE is its inherent paradox: For those seeking financial security, early retirement can be risky. Since many early retirees rely solely on income from stocks, bonds or real estate for living expenses, sudden market downturns can pose a threat to their plans. At the same time, these people have to forecast their cost of living for decades. This means prolonged periods of high inflation can wreck their forecasts and budgets.

The self-reliance and thrift embodied by FIRE have roots in American history. Elements of the philosophy can be found in Ben Franklin’s 1758 classic “The Way to Wealth,” Ralph Waldo Emerson’s 1841 essay “Self-Reliance” and Henry David Thoreau’s “Walden,” an 1854 book about living simply in a cabin he built near Concord, Mass.

Many FIRE boosters cite a more recent work: the 1992 book “Your Money or Your Life” by Vicki Robin and Joe Dominguez. This paean to financial independence and anti-consumerism, a business best seller in the ‘90s, found a new audience after the 2008 financial crisis.

“Millennials understand the rules have changed,” said Ms. Robin, now 73. “They understand that the system their parents built is coming apart.”

FIRE enthusiasts gather around the country to discuss ways to save more, spend less, and manage investments. A recent meet-up in Manhattan attracted close to 30 people to an office conference room. The attendees—mostly men in their 20s and 30s, several with backgrounds in engineering—discussed taxes, index funds and real-estate investing over beer and potato chips.

“We are surrounded by consumerism, advertisements and marketing, and there are a lot of easy ways to spend,” said David Rodriguez, 33, a mechanical engineer who helped organize the meeting. “It is important to have a place to find like-minded people.”
Ms. Hall visits the library for books and videos; she borrows Netflix logins from friends.
Ms. Hall visits the library for books and videos; she borrows Netflix logins from friends. Photo: Matt Lutton for The Wall Street Journal

The interest in thrift is flourishing most visibly online where frugality evangelists amass large followings via podcasts, blogs and conferences. One of the most popular FIRE blogs, Mr. Money Mustache, started in 2011, has attracted about 2.5 million page views in the past 30 days, according to Google Analytics data. A podcast devoted to the topic, ChooseFI, has been downloaded 5.2 million times and been played in 190 countries since its inception in early 2017, according to podcast hosting service Liberated Syndication. This puts it in the top 2% of the more than 50,000 podcasts the service hosts.

Attendees at “FI Chautauqua,” a week-long financial independence conference, spent up to $3,000 this year (not including airfare) to go to Greece and hear leaders in the FIRE community share tips.

Some who have tried the path of early retirement say it isn’t always as idyllic as it sounds. Socializing with people who still have conventional jobs can be awkward, said Ed Ditto, 49, who retired at 36 as an energy trader and now writes the Early Retirement Dude blog. His solution is to invite friends and neighbors to backyard potlucks.

“I don’t bring up the fact that I don’t have a job,” he said. “If someone is interested, I’ll talk about it, but I don’t want to run the risk of stirring up resentment.”

Brandon Ganch, 36, who retired from his job as a software engineer in 2016, said his frugality became an obsession and he stressed over small purchases by his wife. He often got upset when visitors took long hot showers at his former Vermont home or his wife ordered a “$15 main course instead of a $10 sandwich” at a restaurant.

“It wasn’t healthy,” said Mr. Ganch, who now lives in Scotland.

Sylvia Hall's cupboard contains dried goods bought in bulk and her refrigerator includes pasta, black beans, and quinoa. She spends around $75 a month on groceries. Photos: Sylvia Hall

“Frugalwoods” author Elizabeth Thames quit her nonprofit job so she could concentrate on a blog about life as a rural Vermont homesteader, a dream made possible by “extreme frugality” her website says. It says she has found “everything from coats to fondue pots to wine glasses” in the trash and that her husband learned to fix the plumbing.

One complaint from readers was that the 33-year-old author and her husband still earn sizable incomes. Nate Thames works for a nonprofit and was paid about $270,000 in 2016, according to his employer’s most recent tax forms. Ms. Thames makes an undisclosed amount from her blog and a recently published book.

“Now I understand why even with cutting everything to the bone, that we haven’t been able to save like they do,” a reader posted in an online review of the book.

Ms. Thames says she is “transparent about the fact that my husband still works a conventional job from home and that I enjoy working for myself through”

Mr. Sabatier, 33, says his Millennial Money website made $401,000 last year. Blogger Joe Udo, 44, recently disclosed he has made almost $350,000 since starting “Retire by 40” in 2010.

Tanja Hester, author of a blog called Our Next Life, called for FIRE bloggers to be more transparent about their financial lives in a post this year. She said she makes less than $1,000 a year on the blog, but declines to disclose her income from a book advance, saying “there’s no need to share your actual numbers if you are honest with readers about your general financial situation.”

Emma Pattee, 28, discovered she missed the social benefits of office life. She left a job in marketing two years ago with the goal of writing a novel. She had $150,000 in savings and more than $900,000 in real-estate equity, stemming from a $144,000 home she purchased in Portland, Ore., in 2012 that she says tripled in value, enabling her to purchase four other rental properties. Ms. Pattee, who married in 2015, says she and her husband, Andrew Hanna, 33, live off the rental income and save his salary in medical administration.

“It was hard to go from working every day in an office full of people to sitting in a tiny apartment by myself,” she said. “It is very isolating.”

Recently she began taking on more freelance work as a copywriter. “I got a lot more meaning from my work than I had realized,” she said. “It is a lot harder to find meaning than to save 70% of your income.”

Ms. Hall, the lawyer from Seattle, is hoping to retire with $2 million in assets at age 40. She currently has $1.5 million in assets and expects to hit her goal by 2020. Her plan then is to “Airbnb-it around the world” for 10 months on a retirement income of about $25,000 and visit friends and family the other two months.

She said she is aware of the problems that could trip her up, from unexpected health expenses to a prolonged bear market. But she said she has a detailed plan to secure health insurance abroad and if a market downturn dents her nest egg, she is confident she can adjust her lifestyle.

“The goal is to try to live in such a way that I won’t be forced to go back to work.”

FIRE proponents say they account for the danger of fluctuating markets by adhering to a rule-of-thumb pioneered by financial planner William Bengen, who concluded retirees should spend no more than 4.5% of their initial nest egg, adjusted annually for inflation, to ensure a high probability of supporting themselves over decades.

It isn’t quite that simple, Mr. Bengen, 71, said in an interview. Younger retirees are more vulnerable to unexpected expenses, and his rule applies only to tax-advantaged 401(k)s and individual retirement accounts for as long as 30 years.

It took a Category 5 catastrophe for Sylvia Hall to start thinking of changing her approach to her finances. When Hurricane Katrina struck the Gulf Coast in 2005, Ms. Hall, then a New Orleans resident, temporarily lost a home and a paycheck as the first payments were due on $101,600 in law-school debt.

The uncertainty was so unsettling Ms. Hall instituted a strict budget. She started buying discounted meat on its expiration date, took a second job delivering pizzas and began saving half of her $50,000 salary after her law firm reopened in 2006. 
Ms. Hall plans to have $2 million in assets when she retires.

Ms. Hall plans to have $2 million in assets when she retires. Photo: Matt Lutton for The Wall Street Journal

After setting aside about $250 a month for discretionary expenses, Ms. Hall devoted the rest—over $2,000 a month—to student loans. By 2009, she had paid off all but $35,000, which she consolidated at 1.6%.

“Not having anything freed me up to not be beholden to stuff and status and to be comfortable and happy with less,” Ms. Hall said. “There’s something liberating about that.”

She stumbled on the Mr. Money Mustache blog in 2012, after moving to Seattle. The idea of retiring early resonated. She increased her savings to about 70% of her after-tax proceeds, which are now about $100,000, and limited her spending to no more than $30,000 annually. That includes $2,400 a year on car and homeowners’ insurance, $10,200 on mortgage payments and $75 a month on groceries.

Her grocery budget is so detailed she knows how much she will pay each month for oatmeal (a five-pound bag costs her $3), blueberries (a five-pound bag costs $10), popcorn (1 pound for $2) and rice (60 cents per pound). Now a vegan, she buys fruit at a stand that sells “a table of things that didn’t sell” at steep discounts, including brown bananas she freezes and uses for smoothies.

An occasional splurge is a $5 bottle of wine, or a box for $15.

Ms. Hall, who is single, frequently has friends over for potluck dinners, travels using rewards points on her credit cards, and buys season tickets to the theater for a price that works out to about $15 a month.

“I have always lived on very little but never felt I was being deprived,” she said. “If I made twice the money, I don’t think anything would change. There is nothing I want that I don’t have.”

Being Fit May Be as Good for You as Not Smoking

A new study found a strong correlation between endurance and living a long life.

By Gretchen Reynolds

CreditCreditJeenah Moon for The New York Times

Being in shape may be as important to a long life as not smoking, according to an interesting new study of the links between fitness and mortality.

The study also explores whether there is any ceiling to the benefits of fitness — whether, in essence, you can exercise too much. The answer, it found, is a reassuring no.

At this point, we should not be surprised to hear that people who exercise and have high aerobic endurance tend to live longer than those who are sedentary and out of shape. A large body of past research has linked exercise with longevity and indicated that people who work out tend also to be people with lengthy, healthy lives.

But much of this research relied on asking people about their exercise routines, a practice that is known to elicit unreliable answers.

So for the new study, which was published this month in JAMA Network Open, a group of researchers and physicians at the Cleveland Clinic decided to look for more objective ways to measure the relationship between endurance and longevity.

Because most of the researchers also are avid exercisers and even competitive athletes, they hoped to learn, too, whether people can overdo exercise and potentially shorten their life spans.

Helpfully, they had a trove of data at hand in the records of hundreds of thousands of men and women who had completed treadmill stress tests at the clinic.

These stress tests, which sometimes are part of standard yearly checkups and other times are ordered by physicians to check for cardiac or other health problems, involve someone jogging on a treadmill at a progressively intense pace until, basically, he or she cannot.

Based on the results, technicians can determine people’s aerobic fitness.

Now, the researchers turned to this database and pulled records for 122,007 middle-aged or older men and women.

They grouped the people by fitness, from those who were in the bottom quarter of fitness, to those who were below average, above average or highly fit, essentially in the top 25 percent of fitness.

The researchers also marked off a small group in the top 2 percent or so of endurance and categorized them as having “elite” fitness.

Then the researchers checked death records for the decade after people had completed their stress tests.

They found that some of the men and women had died and also that there strong correlations between fitness and mortality.

The greater someone’s fitness, the less likely he or she was to have died prematurely and vice versa, the numbers showed.

This correlation held true at every level of fitness, the researchers found. People with the lowest fitness were more likely to die early than those with below-average fitness, while those with high fitness lived longer than those whose fitness was above average.

Even at the loftiest reaches of endurance, the advantage held, the data showed. The 2 percent of the people with elite fitness lived longer than those with high fitness and were about 80 percent less likely to die prematurely than the men and women with the lowest endurance.

“We did not see any indication that you can be too fit,” says Dr. Wael Jaber, the study’s senior author and a cardiologist at the Cleveland Clinic Lerner College of Medicine.

More surprising, when the researchers compared the longevity benefits of endurance to those of other health factors, fitness held up well.

People in this database who smoked or had heart disease were more likely to die young than those who did not, the researchers found, as they had expected.

But the numerical risks were about the same as the ones associated with being unfit. In other words, being out of shape increased someone’s risk of dying early as much as smoking did.

But Dr. Jaber cautions that these numbers can be misinterpreted. The clinic’s medical records noted only if someone had ever smoked, not for how many years or how frequently, making risk assessments difficult.

The correlations also do not suggest that being fit somehow balances out or reduces the health risks of smoking, Dr. Jaber says. “Fitness is very good for you and so, obviously, is not smoking,” he says.

The study has other caveats, including the confounding role of genes, which strongly influence fitness. Some of the apparent longevity benefits of being in shape may be from having the right parents, Dr. Jaber says.

Socioeconomic status and other factors also probably play a role. People who show up for stress testing at the Cleveland Clinic may have resources that are not shared by everyone, including good insurance and an interest in health.

Perhaps most fundamentally, the study did not look directly at exercise, only fitness, and so cannot tell us how much we should move to extend our lives.

But the findings are tantalizing, Dr. Jaber says. “We know from other research that you can increase fitness with exercise,” he says. “So I think we can say, based on this study and others, that it is a very good idea to exercise if you hope for a long and healthy life.”