GREY:NEVDQ - Post by User
Post by
bogfiton Nov 29, 2023 9:10am
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Post# 35758222
A default cycle has started, spurred by high rates and debt
A default cycle has started, spurred by high rates and debt "The credit market is looking at some dark clouds on the horizon as the high cost of debt is beginning to bite US companies.
According to economists at Apollo Management, those clouds are the start of a default cycle, triggered by the Fed's hitched interest rates.
"With the Fed keeping rates higher for longer, higher debt costs will continue to weigh on earnings and interest coverage ratios over the coming quarters, and both IG and HY companies will experience higher refinancing costs," economists led by Torsten Slk wrote in a credit market outlook released on Saturday.
Which is all to say that borrowing money has become too expensive for firms and a lot more of them are going to default.
In July, data from Moody's showed that corporate defaults had already blown past total defaults in all of 2022 by a whopping 53%.
Meanwhile, S&P Global data has shown a cumulative 516 bankruptcy filings this year through September, which is more than in all of 2021 or 2022 and hovering just below the 518 filings in the first three quarters of 2020, when the pandemic roiled the economy."
A Default Cycle Has Started. These 4 Charts Explain How Severe It Is. (businessinsider.com)
We can't seem to get it all together for a clear picture of what is to come. Add in the higher interest cost of refinance to exploding insurance costs, and we could be facing a major depression in commercial RE. Defaulting commercial debt will spill over into the stock market when debtors need to liquidate assets to meet margin calls, loan covenants etc.
Rough times ahead IMO
b.