U.S. corporate debt levels have again surpassed their pre-crisis peaks of $6 trillion, raising widespread concern that, as the Federal Reserve raises interest rates, some firms could run into financial trouble.
“We think corporate debt is a key vulnerability,” JP Morgan economists Jesse Edgerton and Devwrat Vegad wrote in a research note.
They said corporate bond market was likely not big enough for a crash there to have consequences as widespread as the U.S. housing meltdown of 2006-2008.
Still, it’s no wonder around a quarter of global fund managers expect corporate bonds to be the worst-performing asset class of 2019, according to the latest Bank of America survey, which pegs U.S. corporate debt levels at 46% of U.S. gross domestic product.
Respondents also expressed growing concern about increasingly looser loan terms, auspiciously known as “covenant-lite” and reminiscent of the kind of bad mortgage that got the financial system into trouble 10 years ago.