Just because there haven’t been a lot of headlines recently about collapsing banks—like we had about Credit Suisse and Silicon Valley Bank back in March of this year—it doesn’t mean the trans-Atlantic financial system is not blowing out. For example, one important part of the “everything bubble"—the $1.4 trillion U.S. junk loan market—is seeing a sharp rise in defaults over the course of 2023 because of rising interest rates. And now Fed chairman Jerome Powell has just announced that interest rates will continue to go: “Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year,” he said in remarks prepared for the House of Representatives’ Committee on Financial Services.
Junk loans are loans to “risky companies with `floating’ borrowing costs,” the Financial Times explained in a June 20 article, and this is “a market that is a critical source of financing for many companies.”
