The U.S. economy is showing some vulnerabilities as investors increasingly buy up risky corporate debt and businesses rely on “historically high” borrowing levels, the Federal Reserve said Wednesday in its first-ever financial stability report.
Should the economy turn, money managers who've been chasing returns might be in for a rude awakening, with prices for leveraged loans and junk bonds potentially causing some of the steepest losses, the U.S. central bank warned.
“High leverage has historically been linked to elevated financial distress and retrenchment by businesses in economic downturns,” the Fed said in a section of its report highlighting how indebted companies are borrowing even more money. “Such an increase in financial distress, should it transpire, could trigger a broad adjustment in prices of business debt.”
Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.
Your access to unlimited Treasury & Risk content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Thought leadership on regulatory changes, economic trends, corporate success stories, and tactical solutions for treasurers, CFOs, risk managers, controllers, and other finance professionals
- Informative weekly newsletter featuring news, analysis, real-world case studies, and other critical content
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the employee benefits and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
