There is a massive corporate debt bubble floating around out there, and when it pops, it will likely take a lot of companies down with it.
Outstanding corporate debt in the US stands at almost $10 trillion, according to SEC Chairman Jay Clayton. That’s nearly 50% of GDP.
The Federal Reserve has issued another warning about corporate debt.
But the Fed’s concerns seem a bit ironic considering its own easy-money policies have made all of this borrowing possible.
As WolfStreet put it, the $1.3 billion leveraged loan market has come unglued.
“Leveraged loans” are made to firms already deeply in debt. Think subprime loans for corporations. As with any risky loan, they could be difficult to either collect or resell in a downturn, putting both the borrower and lender at risk.
We’ve written a lot about government debt and warning signs in the Treasuries market. The US government needs to sell over a trillion dollars in bonds a year over the next few years to finance its skyrocketing deficit. Who exactly will buy all of these government bonds remains unclear and the impact on interest rates could send shockwaves through the entire US economy.
Equally troubling, but less often discussed, are the risks piling up in the corporate bond market.