US corporate debt similar to subprime mortgage crisis, says Moody’s Analytics

Staff
stand in a meeting room at Lehman Brothers offices in the
financial district of Canary Wharf in London September 11, 2008.
Lehman’s collapse was the biggest single moment of the financial
crisis.
REUTERS/Kevin
Coombs

• An overlooked area of the debt markets has “eerie
  similarities” to the 2008 sub-prime mortgage crisis.
• Mark Zandi, the chief economist at the analytics arm of
  the ratings agency Moody’s, argued that rising risk taking and
  falling standards of underwriting in the corporate bond and
  leveraged debt space are a big threat.
• The amount of leveraged loans to non-financial
  companies has now risen to around $1.4 trillion.

Wall Street may have just seen US stocks enter their longest bull
market in history, but there are “eerie similarities” between one
area of the market and the sub-prime mortgage crisis that
triggered the last crash in 2008, according to research from the
ratings agency Moody’s.

Writing this week, Mark Zandi, the chief economist at the
analytics arm of Moody’s, argued that rising risk taking and
falling standards of underwriting in the corporate bond and
leveraged debt space are, at least partially, analogous to what
happened in 2007 and 2008.

Noting that we are very much in the midst of the boom period of
the business cycle, Zandi argued that such phases are generally
characterised by “excessive risk-taking somewhere in the
financial system.”

“This fuels the boom and is eventually at the center of the
subsequent bust,” he said. …

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