Monday, April 18, 2016

There's A $1 Trillion Bubble 
That's Ready To Burst
Business Insider article highlights the big bubble in the corporate bond market - in speculative grade credit .. UBS analyst estimates that 40% of all issuers are of the lowest credit quality, & roughly $1 Trillion will end up as distressed debt in this cycle .. "Much of the debt was bought to pick-up yield linearly, but the default risk is exponential .. Commodity-related stress will push default rates up towards 5-6%, without assuming much increase in non-commodity defaults .. But the broader speculative grade universe is highly leveraged – particularly the lower quality segment (many single Bs, nearly all triple Cs), which, by definition, leaves them more exposed to peaking profit margins, rising interest costs and a slowdown in U.S. growth .. Simply put, lower quality firms have been structurally increasing debt faster than earnings as interest rates have declined."
LINK HERE to the article

No comments: