A ‘Tsunami’ is About to Overwhelm the Debt Market
A tidal wave may be coming to the bond market, and it’s not going to be pretty.
At least that’s the view of Matthew Mish, credit strategist at UBS. To Mish, the elevated rates of default in the commodity sector and high risk bonds are a harbinger of things to come for the broader debt market.
“First, our quantitative framework is signaling a broader deterioration in the default outlook, with our model projecting default rates of 4.3% over the next 12 months (versus 2.6% one year prior),” Mish wrote in a note to clients on Thursday.
Mish’s research asks whether the recent uptick in default rates is simply a “rogue wave” that will dissipate or the “start of a tsunami” that will bring the rate of defaults much higher over the long term.