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A new credit cycle is born

Although the new consensus is betting on a soft landing for the US economy, there are several indicators that point to a not so kind scenario. In the chart below, you can see the default rates for #investmentgrade and #highyield bonds for the last 53 years. You can clearly see the cycles with spikes typically centered around recessions. The last one was triggered by the pandemic and was somehow managed through stimuli from the US government. But it seems that a new wave of defaults is starting, and although it could be developing more slowly than prior ones due to the fact that companies have extended maturities on their debt, the number of zombie companies (the ones that don’t produce enough earnings to pay their interest on their debt) is significantly higher than during the #gfc. And the worst part is that the market is not paying attention, thinking that everything is under control.

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Chart Source: Apollo

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