A huge «bubble» inflated in the bond market. It is estimated at $ 1 trillion

ogromny-j-puzy-r-razdulsya-na-ry-nke-obligatsij-on-otsenen-v-1-trillion-dollarov«We clearly see the» bubble «in the corporate debt market and it is completely speculative. Structural downside risks to high-yield bonds and loans — are quite high, while the risk to growth should not be let out of attention, «- said Matthew Mish from UBS. «We believe that 40% of issuers — a very low quality, and we have about $ 1 trillion of bad debts in this cycle, — says the expert. According to Misch, the «bubble» was inflated for the following reasons: 1. Support from the Central Bank allowed the «zombie companies» to stay afloat, increasing amounts of debt. 2. Low Treasury yields has forced pension funds and other investors to shift to a much larger speculative debt, to achieve their goals. 3. Increased demand for high yield debt issuers helped speculative class to find their clients. On the one hand, the expansion of credit spreads leads to a serious deterioration of the situation in the debt market, on the other widening of spreads and defaults claim of an impending crash. «Stress caused by what is happening in the commodities market, will push default rates by 5-6% up», — says Misch. «However, the market of speculative debt is characterized by high levels of lending that threatens to increase in interest expenses and a decline in economic growth in the US» — the expert believes. 10% of the companies S & P 500 hold 70% cash, so the lower-quality issuers, formed the «bubble» is not credible. «In other words, low-quality companies, increasing their debt faster than earnings, because interest rates — reduced», — says Misch. «This» bubble «may not burst in the month, its existence is enough to justify our» bearish «stance on corporate debt and our preference for higher quality securities», — assured the expert.

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