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Global Junk Debt Flashes Warning on Growing Risk of Stagflation
Global investors now require about 6.4 percentage points of extra yield to own high-risk CCC rated bonds over other junk notes that sit just below investment grade, the largest premium in 14 months, Bloomberg indexes show. Credit funds are bracing for even greater stress in higher-risk loans and private credit where debt from a $2 trillion leveraged buyout boom is concentrated.
“As growth slows and refinancing costs remain elevated, stresses are emerging – most visibly in segments of private corporate credit and middle market direct lending,” Pimco’s Richard Clarida, Andrew Balls and Daniel Ivascyn wrote in the firm’s latest annual secular outlook. Lower-quality credit such as leveraged and private direct lending will experience significantly higher losses ahead, they warned. (Bloomberg)