The Bank of England is sounding the alarm on a quiet corner of the debt market now worth $1.4 trillion
Business Insider
Published Oct 17, 2018 08:04AM ET
Updated Oct 17, 2018 10:02AM ET
- The Bank of England is sounding the alarm over an underexposed area of the corporate debt market.
- It bears striking similarities to what happened in the US subprime mortgage market in the run up to the financial crisis, the central bank said on Thursday.
- The amount of leveraged loans to nonfinancial companies has risen to about $1.4 trillion globally.
"eerie similarities" to what happened with sub prime mortgages in the run up to the crisis.
"The most serious developing threat to the current cycle is lending to highly leveraged nonfinancial businesses," Mark Zandi, the chief economist at the analytics arm of Moody's said in August.
While it sounded the alarm on the corporate leveraged debt market, the Bank of England struck a reasonably sanguine note, pointing to "important differences" between leveraged loans and what happened in the subprime mortgage market.
"A substantial proportion of subprime mortgages had been financed by relying on short-term wholesale funding, including from money market funds, and there had been an active repo market in subprime mortgage securitizations. Banks had substantial contingent liabilities related to subprime mortgages," it said.
"This was not the case for leveraged loans."
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Written By: Business Insider
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