Corporate debt concerns continue to rise | European, US leveraged-loan price indexes slump | CLOs seen as weak point in maturing credit cycle
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December 11, 2018
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Credit Markets
Corporate debt concerns continue to rise
A combination of factors has experts worried about the status of corporate debt markets. One-third of US investment grade debt comes with high-yield leverage ratios, according to Cantor Fitzgerald.
Financial Times (subscription required) (12/9) 
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European, US leveraged-loan price indexes slump
Price indexes for leveraged loans in the US and Europe are trading at the lowest levels in two years as concerns grow among lenders about the state of the global economy and the US-Chinese trade dispute. Less than 4% of leveraged loans traded above face value in November, down from over 65% in October, according to JPMorgan Chase.
Bloomberg (tiered subscription model) (12/6) 
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CLOs seen as weak point in maturing credit cycle
Collateralized loan obligations now top $600 billion in the US and are a growing focus of concern as the credit cycle approaches its peak. Worries are heightened by the fact that banks and insurers hold nearly a quarter of the total, which is fed largely by the ballooning $1 trillion worth of leveraged loans.
Risk (subscription required) (12/11) 
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A split in Libor fallbacks could mean basis risks
When the Libor benchmark use ends, market participants could face basis risks as swaps users embrace one fallback rate and US bond and loan markets split off to use different fallbacks, experts say.
Risk (subscription required) (12/5) 
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Bets on US interest-rate hikes fade amid market chaos
Federal Reserve funds futures contracts indicate 63% of investors expect the US central bank to increase interest rates this month, down from over 80% in September, as market jitters grow.
Financial Times (subscription required) (12/6) 
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Regulatory and Accounting Issues
Banks seen at risk due to corporate debt
Banks may be particularly vulnerable in the event of an economic downturn due to their exposure in the corporate debt market, according to the Office of the Comptroller of the Currency. The agency's semiannual risk report highlights the high volume of commercial loans as well as banks' exposure to nonfinancial corporate debt.
American Banker online (free content) (12/3) 
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Central banks work to play role in combating climate change
The central banks that played a crucial role in rescuing the world's largest financial-services institutions during the depths of the financial crisis are now starting to nudge banks toward better practices when it comes to sustainable finance. The Bank of England and the Dutch central bank have led the way by taking steps to hold senior executives accountable for managing a bank's climate change risks.
Financial Times (subscription required) (12/4) 
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G-Sib scores of European banks driven by cross-border activities
The cross-jurisdictional activity of large European and Swiss banks accounted for 30.8% of the banks' total systemic risk using the Basel Committee on Banking Supervision's five indicator categories scoring framework, compared with 19.8% for US banks.
Risk (subscription required) (12/3) 
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Central banks face mounting political pressure
Growing political interference in monetary policy is threatening the independence of global central banks in emerging markets and developed economies, which could damage those countries' future prospects.
Financial Times (subscription required) (12/9) 
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ECB to decide on TLTRO scheme wind-down
The fate of the European Central Bank's obscure targeted longer-term refinancing operations will likely be debated in 2019 given Italian banks' heavy reliance on it for additional liquidity.
Financial Times (subscription required) (12/7) 
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IACPM News
Annual Fall Conference in Stamford, Conn. -- Presentations are available to conference participants until Dec. 17!
The IACPM thanks the IACPM Fall Conference Program Committee and all of the speakers who participated in IACPM's Annual Fall Conference. Conference participants have received an email containing a link to the IACPM website, where they can access conference presentations until December 17th, 2018. For question, please contact Dani Gelband at dani@iacpm.org.
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The IACPM is an industry association established to further the practice of credit exposure management by providing an active forum for its member institutions to exchange ideas on topics of common interest. Learn more at www.iacpm.org.

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