Gaining a huge bubble at the bottom of the bond market can result to a popping which could put $1 trillion at jeopardy.
According to Matthew Mish with his note to the clients, we accept as true that there is a corporate credit bubble in projected grade credit, and the operational downside risks for high yield bonds and loans are material, with very considerable downside risks to growth.
Mish also emphasized that on the bottom-line of the levels of junk in regards to the surface of corporate bonds, we are having a significant bubble formation.
He also wrote “We believe roughly 40% of all issuers are of the lowest quality, and roughly $1tn which will end up ‘distressed debt’ in this cycle,” Mish wrote. “”Much of the debt was bought to pick-up yield linearly, but the default risk is exponential,” as he added.
Why is this happening?