Monday, April 11, 2016

Central Bank Financial Repression 
Caused A Tsunami Of Corporate Debt
That is Now Washing Back With A Vengeance
David Stockman* explains how central bank interest rate repression has elicited a tsunami of corporate debt that "will now come washing back to shore in a high tide of redemptions during the balance of this decade. To wit, in 2006 there was $4.6 trillion of US corporate bonds outstanding (IG and HY combined) compared to $8.2 trillion at present. Not only has the total soared by 77% during the last decade, but during the next five years $4.1 trillion of these bonds will mature. In short, unless the Fed has miraculously outlawed the business cycle, a historically unprecedented level of maturing debt will rollover right into the next recession. And under conditions of swooning corporate sales and cash flow, a lot of the current HY portion of this $4 trillion mountain will carry a triple hook at the time, while a not inconsiderable portion of the marginally investment grade bonds (BBB) will tumble into the HY ratings categories. Needless to say, refinancing this mountain of deteriorating debt in the midst of a cyclical downturn will bestow on the concept of 'tightening credit conditions' a whole new definition. So there is a colossal problem with corporate leverage. But when it comes to assessing financial risk, our Keynesian school marm is apparently blind as a bat."
LINK HERE to the essay

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