Torsten Slok, chief economist for alternative asset manager Apollo Global, believes the credit default cycle is now underway (from The Daily Spark on August 26)…

Since the Fed started hiking in March 2022, default rates have been moving higher, and every day there are companies that cannot get a new loan or refinance an existing loan. This is how monetary policy works. A higher cost of capital makes it harder for firms to get financing. With the strong uptrend in
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Billionaire distressed debt investor Howard Marks expects defaults to keep rising (from Bloomberg on September 6)…

Oaktree Capital Management co-founder Howard Marks said he expects more companies to default on their debt as higher interest rates make it harder for struggling companies to raise capital. “When you go through a period when it’s super easy to raise money for any purpose or no purpose, and you go into a period when
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Despite plenty of reasons for concern, the spreads between high-yield corporate debt and U.S. Treasuries have been falling for most of the year (from David Dierking via X on September 18)…

How in the world are high yield spreads going DOWN right now? Consumers are running out of money to spend. Consumer credit is through the roof. Defaults are rising. Bankruptcies are rising. We’ve got a de facto recession in Europe. China is imploding. Student loan payments just restarted. Yet investors are demanding LESS return for
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The average company’s net interest payment has actually fallen over the past couple years (from Charlie Bilello via X on September 19)…

The Fed has hiked rates 525 bps since March 2022 but the net interest payments of corporations has actually declined. Why? Many companies locked in low interest rates on their debt in 2020-21 and are now earning much higher yields on their cash.

Global default rates are on pace to exceed 2008 levels (from The Kobeissi Letter via X on September 23)…

Year-to-date default rates in the US and Europe are already above 2008 levels. Interestingly, this is barely getting any attention. We are on track to see more defaults in the US and Europe than all years back 2009, other than 2020. Default rates have nearly tripled since 2022 when the Fed started raising interest rates.
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