The Federal Reserve’s most aggressive pace of interest rate increases in decades is set to trigger a surge of defaults over the next two years in the $1.4tn market for risky corporate loans, according to Wall Street banks and rating agencies.
Analysts across the industry forecast that defaults will at least double from today’s relatively low 1.6 per cent. But the disparity is stark, with some firms warning clients that anywhere from one-in-20 to one-in-10 loans could default next year.
Deutsche Bank expects the default rate on leveraged loans in the US to climb to 5.6 per cent next year — up from 1.6 per cent — before rising to 11.3 per cent in 2024. That would leave defaults close to all-time highs set in 2009.
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