As corporate debt reaches its highest level since the financial crisis, Moody's warns of substantial problems looming on the horizon for junk bonds during the next downturn hits.
The rating agency annouced low interest rates and investors' appetite for yield has prompted firms to issue heaps of debt that offer relatively low levels of protection for investors. While the short-term credit outlook is "risk-free", this will not be the same story when economic conditions deteriorate.
The "protracted climate of low growth and low interest rates has been a catalyst for important changes in nonfinancial corporate credit quality," according to Mariarosa Verde.
"The very large number of extremely leveraged firms has set the space for an especially large wave of defaults when the next period of economic stress eventually arrives..."