The Debt Implosion 2018 – Yes, It’s Time To Worry…Now!

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“just 2-in-5 Americans said they’re able to spend less than they earn. Spending on U.S. general purpose credit cards surged 9.4% last year, to $3.5 trillion. Delinquencies are also rising. U.S. household debt climbed in Q4 at the fastest pace since 2007”

 

By bulking up on debt, U.S. companies have created a timebomb

The Danger Lurking in a Safe Corner of the Bond Market By bulking up on debt, U.S. companies have added a new uncertainly into financial markets

U.S. companies have been bulking up on debt, introducing another wild card into financial markets already rattled by the recent tech selloff and the prospect of rising interest rates.

One slice of the high-grade corporate bond universe is fast becoming the epicenter of these concerns. There is $2.5 trillion in outstanding U.S. debt rated triple-B, according to Morgan Stanley , up from $1.3 trillion five years ago and $686 billion a decade ago. That is the most ever for companies rated triple-B, which is the lowest rung of the ratings ladder for companies that are above more speculative, or junk, bonds.

The fear: If the long economic expansion takes a turn for the worse, investors could jettison the debt of more leveraged borrowers such as triple-B issuers. That would further weigh on companies and potentially exacerbate any contraction.

The International Monetary Fund recently highlighted the triple-B risk in a report on financial stability that warned about “a buildup of financial balance sheet” debt.

 

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Emerging market investors turn cautious on booming debt sales

Performance has turned negative after strong gains in 2017

Emerging market investors are showing signs of caution as the hefty pace of debt sales by companies, banks and governments has combined with a negative performance for bond prices since the start of the year.

EM syndicated borrowing totalled $382bn in the year to March 23, according to data provider Dealogic — just $35bn below the record amount issued in the first quarter of 2017. Once last week’s deals are finalised, banks expect a record total.

“We are set for a record-breaking Q1,” said Nick Darrant, executive director of fixed income syndicate at JPMorgan.

Persistent dollar weakness has buoyed dealmaking in recent months, but flows of money into EM are slowing, while higher bond yields have driven returns for the sector into negative territory. The JPMorgan global EM bond index is 2.3 per cent lower so far this year after a 9.1 per cent total return gain for 2017.

 

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Pulling out home equity to levels not seen since the housing crisis, credit card debt soaring, unable to save absolutely anything, but somehow everything is fine?! Absolutely not. And the longer it goes on, the worse it will be.
In your experience, do you know anyone who is constantly putting themselves further in debt?

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