Looming Defaults Threaten Chain Reaction From Credit Into Stocks
- Stock-market volatility feeds off wider high-yield bond spread
- Gap between stock market haves and have-nots is widening
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The warnings from credit watchers have been coming for months: A looming wave of corporate defaults is going to shatter the calm in equity markets. And still, US stocks have powered to highs last seen in August.
Credit Cassandras point to the escalating threats. Repeat bankruptcies are climbing at the fastest pace since the financial crisis, borrowing costs keep rising and bank lending standards are tightening. Spreads on the riskiest company debt will have to widen as the economy slows, according to many Wall Street veterans. That would jolt equity markets turning a blind eye to dangerous credit burdens, they say. A strong link between rising junk bond yields and volatile stock markets has been evident for years.