Bonds & Credit Markets

Corporate profits contracted by 6.5% year/year in 2Q23 … acceleration to downside from prior quarter’s 1.8% decline; worst drop since pandemic

I’ve been a broken record on the forthcoming corporate credit bust–and the CERTAINTY that it would be worse than the GFC– for a year and half. It’s now starting to unfold… Busiest August for Bankruptcy filings ON RECORD

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

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

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.

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.

There are two options, higher for longer or recession will hit and interest rates go down, but credit spreads go up. Both scenarios would trigger delinquency wave.