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Companies and states need credit markets to pay off debts and get new funding. The sovereign debt crisis was a good reason for central banks to decide to invade the credit market, buying up debt, which is one way to rebuild the domestic economy.
Yet, as the world economy felt better, the world's central banks began to reduce the pace of buying up debt over 2017.
Chief executive officer of Crossborder Capital global research group Michael Howell believes that as tightening of monetary policy takes place, credit markets can have some serious consequences.
"We are concerned that it seems that a credit problem may arise in the next twelve months, judging by the economy of the United States in 2019, and this is what the yield curve tells us," Howell told CNBC.
"I think that there are credit risks, because over the past few years there has been a significant increase in the growth of lending, many companies decided to seek money outside banks, and these transactions were evaluated very aggressively, they are very tight, and it's wrong," he said.
Spreads show the difference between US Treasury bonds and bonds of companies. When they are tight, the market participants usually believe that these corporate bonds are not very risky.
However, according to Howell, the picture that the spreads show right now is wrong.
"There is a great anomaly in what the US yield curve tells you and what US credit markets say," he explained.
The yield curve, a thread that takes into account short-term and interest rates (long-term), has been flat over the last month. Some market participants began to predict that the curve would actually be inverted in 2018. This is usually interpreted as a sign that economic upheavals will come very soon.
source: cnbc.com
Yet, as the world economy felt better, the world's central banks began to reduce the pace of buying up debt over 2017.
Chief executive officer of Crossborder Capital global research group Michael Howell believes that as tightening of monetary policy takes place, credit markets can have some serious consequences.
"We are concerned that it seems that a credit problem may arise in the next twelve months, judging by the economy of the United States in 2019, and this is what the yield curve tells us," Howell told CNBC.
"I think that there are credit risks, because over the past few years there has been a significant increase in the growth of lending, many companies decided to seek money outside banks, and these transactions were evaluated very aggressively, they are very tight, and it's wrong," he said.
Spreads show the difference between US Treasury bonds and bonds of companies. When they are tight, the market participants usually believe that these corporate bonds are not very risky.
However, according to Howell, the picture that the spreads show right now is wrong.
"There is a great anomaly in what the US yield curve tells you and what US credit markets say," he explained.
The yield curve, a thread that takes into account short-term and interest rates (long-term), has been flat over the last month. Some market participants began to predict that the curve would actually be inverted in 2018. This is usually interpreted as a sign that economic upheavals will come very soon.
source: cnbc.com
