Watch Corporate Debt for Early Warning on U.S. Credit Stress
- Junk bond, leveraged loan risks up since last Fed hiking cycle
- Strong balance sheets can offset first rate rises, says UBS
This article is for subscribers only.
Corporate debt, particularly U.S. junk bonds and leveraged loans, is likely to serve as an early warning system for credit stress from the Federal Reserve’s shift to a tighter monetary policy.
The corporate markets are “a canary in the coal mine” for problems that may arise due to interest-rate hikes and balance-sheet contraction by the central bank, say research analysts led by Matthew Mish at UBS Group AG in a Jan. 12 report. Fed officials have made it clear they’re preparing to increase rates as early as March to combat the fastest inflation in four decades.