JPMorgan: Massive Spike in QE-Driven Corporate Debt a “Key Vulnerability” in US Economy

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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.

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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.

U.S. corporate debt levels have reached pre-crisis records.JPMORGAN

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.

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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.


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