Wow!
I was first alerted to the problem of corporate debt by @conorsen in a previous discussion: bloomberg.com/opinion/articl…
At the same time, a bunch of other people were starting to worry about corporate debt, with leveraged loans being one of the main categories people worried about: bloomberg.com/opinion/articl…
What's a leveraged loan?
It's kind of like a junk bond, but less liquid and less regulated.
bloomberg.com/news/articles/…
It's kind of like a junk bond, but less liquid and less regulated.
bloomberg.com/news/articles/…
Leveraged loans have some of the hallmarks of a dangerous category of debt.
They've changed recently, as covenants that let lenders monitor the borrower's performance got weaker.
They're being packaged, collateralized, and traded much more than before.
They've changed recently, as covenants that let lenders monitor the borrower's performance got weaker.
They're being packaged, collateralized, and traded much more than before.
And the amount of leveraged loans has increased to previously unprecedented levels.
Thus, if we *did* have a recession triggered by the corporate debt market, it seems like a good bet that the leveraged loan market is where the problems would start.
So the abrupt recent drop in the price of leveraged loans, pictured in the tweet above, might signal the start of such problems, and thus the very beginning of the next downturn.
(end)
(end)
