One Market That Is Completely Doomed If Any Of The Downside Risks Come True

A tipster sent in this chart from Harvard Business School showing the sharp improvement in the distressed debt market. Essentially, defaults have collapsed as a result of the improving economy, and are now below historical averages.


Photo: Lazard Capital Markets

But what are these projections based on? The report claims the default rate projections rely on continued positive news from capital markets. It suggests that the deleveraging process in the U.S. hasn’t made much progress and that credit data isn’t improving either.

We will be getting some data on the consumer credit situation later today, which should shed some light on the deleveraging process. But as of December, things didn’t look too good, according to a Brookings report.

What this means for the distressed debt market is that any sort of shock could slam the market. That means things like the Middle East, oil, and Europe, according to the notes on this report. Why? If consumers and businesses are pinched by higher costs, they may not be able to pay their bills, and those already in the distressed space may slip into default.

Another reason to be wary of the oil price spike.

Don’t Miss: Why Ben Bernanke doesn’t think an oil price spike warrants a Fed rate hike >

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