Warnings Sound Again Over Corporates’ $9T Debt

U.S. corporates are weighed down by $9 trillion in debt that analysts have said could lead to economic trouble in only a few years. Recent reports in CNBC said analysts are once again raising concerns over the debt as it “teeters” between investment grade and junk. Experts have warned that the situation could go one of two ways.

The first sees corporates managing their debt and interest rates stabilizing. The second scenario sees a decelerated economy and the struggle among U.S. businesses to continue rolling over their debt.

“There is angst in the marketplace. It’s not misplaced at all,” said Michael Temple, Amundi Pioneer director of credit research, in an interview with the publication. “But are we at that moment where this thing blows sky high? I would think that we’re not there yet. That’s not to say that we don’t get there at some point over the next 12 to 18 months as rates continue to move higher.”

Reports said Wall Street expects corporates to handle the debt load for another year or two, at least. However, continued interest rate increases may create lower corporate profit margins — and with the quality of that debt threatening a boom in defaults, some analysts are growing increasingly worried.

“The answer hinges on how long we will have until the credit cycle turns, how long we have until interest rates have gotten to the point where they start to snuff out economic activity,” Temple continued. “If we were of the opinion that interest rates are already too high for the economy to stand, and the recession was going to happen sometime next year, then I would say we’ve got a real big problem here.”

He added that Amundi Pioneer believes a plateauing economy next year is “not enough to cause the chaos that I just described.”