From Tyler Durden at zerohedge:
One week ago we presented a must read report by Ellington Management which explained that the credit cycle is now turning.
As Ellington pointed out, “We believe that we are now at the end of the “over-investment” phase of the corporate credit cycle in the US that has been playing out since the depths of the GFC. This view is supported by a number of telltale signs of a reversal in the credit cycle:
• Worsening Fundamentals – Declining corporate prots, record levels of corporate leverage, and an elevated high yield share of total corporate debt issuance
• Defaults/Downgrades – Credit rating downgrades at a pace not seen since 2009
Falling Asset Prices – Price deterioration in the lowest quality loans and the most junior CLO tranches
• Tightening Lending Standards – Weak investor appetite for new distressed debt issues, declines in CLO and CCC HY bond issuance, and tightening in domestic bank lending standards
Today, the Deutsche Bank credit strategy team led by Oleg Melentyev, in its “Year-Ahead Outlook 2016” report proves beyond a doubt that not only has the credit cycle turned, but that the default cycle is at hand, initially for energy names (“a default cycle in commodity-related areas at this point is unavoidable, and the only real question here is whether it stays contained to those areas or extends itself to other sectors”) and soon for most other sectors.
To continue reading: “The Default Cycle Is Now Unavoidable“
