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Perhaps 2-3 years to go in current credit cycle [ClearOnMoney]
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Perhaps 2-3 years to go in current credit cycle

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Commentary

Perhaps 2-3 years to go in current credit cycle

9 Oct 2012 by Jim Fickett

The unquestioned competence of David Merkel, at the Aleph Blog, is in (1) his inside knowledge of the insurance industry, as a former actuary, and (2) his gut feeling for the bond market and credit cycle. The latter is based on his long observation of the markets, a decent understanding of monetary policy, and experience as an institutional bond investor. Anyhow, I take seriously his intuition about where we are in the credit cycle, and he currently sees 2-3 more years of credit growth before a return of large-scale defaults:

Collateralized Loan and Debt Obligations have returned. That indicates we are in the final phase of this credit cycle. When we begin to lever up junk credit, we have 2-3 years to go or so, before the credit cycle crests. The issuance of junk bonds has reached new highs, and again, defaults will take 2-3 more years to ripen. Like 2005-2007, the credit ratings for the junk being issued are more weighted to single-B and CCC debt, rather than BB debt. 2015 could shape up to be really interesting.