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UBS: The Fed Is Ignoring This $1.2 Trillion Gap


UBS strategists Matthew Mish and Stephen Caprio wrote Thursday that credit markets will have trouble refinancing the $1.2T (yes, trillion) of debt at risk from leveraged and high-yield loans.

High-risk companies went on a low-rate borrowing spree under the Fed’s quantitative easing program. Now 35% to 40% of those loans could need refinancing after Fed rate hikes, and the Fed won’t help credit markets absorb the $1.2T gap, Business Insider reports.

Mish and Caprio say the Fed is “condoning rising default rates” and doesn’t understand the size of the problem or the “consequences of their policy actions.” But, to be fair, few really understand the size of $1.2 trillion.

High-risk borrowers in the energy industry will be especially pinched with oil just over $40 a barrel. Good portions of low-quality loans will see problems by 2018, since many are due in 2020. [BI]