Bank projects wave of defaults in the US and Europe – 05/31/2023 – Market

A report by Detusche Bank released this Wednesday (30) warns of an imminent wave of corporate defaults in the United States and Europe.

Bank analysts project a gradual increase in credit losses this year, before accelerating more intensely in 2024, when a US recession is expected. The projection comes as the Federal Reserve and the European Central Bank adopt the most restrictive monetary policy since 2008.

The default rate should reach 9% for high-risk bonds in the US and 5.8% for speculative-grade bonds in Europe by the fourth quarter of 2024. For loans, the bank projects a rate of 11.3% in the States United.

“Our cyclical indicators signal an imminent wave of defaults. The Federal Reserve and European Central Bank’s tightest monetary policy in 15 years is clashing with high leverage built on stretched margins,” they said in Deutsche Bank’s annual default study, which is widely read by investors.

During the 2008 financial crisis, rates on junk bonds and loans in the US were 15.6% and 12%, respectively.

The dollar rose this Wednesday (10) with increased bets that the Fed can promote a new increase in interest rates in the US this year, especially after the release of stronger than expected data on the job market in the country. The expectation of higher interest rates in the US makes the country’s fixed income more attractive, which favors the dollar.

With Reuters