If there is another certainty besides death and taxes, it is that the credit cycle must come to an end – eventually. A recession is deemed less likely than a gentler slowdown, but some soft spots are keeping market participants up at night; not least because of nightmares about the intricate workouts ahead should a bad economic environment give rise to debt defaults and bankruptcies.
The anxiety centres mainly around the exponential growth in both leveraged loans and BBB rated investment grade bonds over the past few years. The root of the concern is the same in both instances: elevated levels of corporate leverage.
