One of the characteristics of the current credit cycle is the resiliency and its length. The effect of zero interest rates and the subsequent ability to issue long term debt with low interest rates has smoothed the path to defaults. The pandemic caused a hiccup that was averted through stimuli, but now the default cycle appears to have started. As you can see in the chart below, 6% of levered loans and 4% of high yield bonds are in default. These were the estimates from rating agencies for peak defaults in the normal scenario for this cycle. Inportabtly, the high yield index companies employ 11 million people, and 8 million are employed by the levered loan companies, or about 12% of the total workforce currently employed. The impact of defaults on unemployment, can be significant.
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