12-10-2018, 09:10 AM
Outstanding US corporate credit market debt has more than doubled from US$3.2 trillion in 2008 to well over US$7 trillion today, with the biggest chunk of it coming in the BBB portion of the credit curve, the lowest rung of investment grade ratings. High debt growth has translated to high leverage – BBBs with 31% of BBB debt leveraged at or above 4.0x. Lower yields driven by QE had important consequences for investor behaviour as well. The search for yield became a driving force which led to substantial inflows into US credit, particularly overseas investors. Also thanks to the Fed emerging as a large non-price-sensitive, programmatic investor of agency mortgage-backed securities (MBS) as part of QE, fixed income investors became progressively underweight MBS and overweight corporate credit. As the cycle got extended, the net result of these flows into credit investments has seen the manifestation of late-cycle excesses in credit markets. High debt growth has led to high leverage and weak structural protections for credit investors.
Morgan Stanley: "A Credit Bear Market Has Started And Will Be Painful" | Zero Hedge