...you still have a number of mainstream analysts who believe that we are still nowhere yet near GFC levels to be concerned about. And they put out such chart like the one below to show where rates are relative to where post-GFC was. As you can see, the red line represents the cost for high yield debts which are not investment grade. BUT the word is YET...sure credit markets are not in trouble but we know rates are rising and potentially threatening....stop, rates are still rising and we have not seen another 1.5-2% additional rate hikes yet and whether the buck stops there if inflation does not receded back to the Fed's 2% target. You can see that the red line is steadily going higher and I expect an increasing divergence too from investment grade bond yields.
But what they excluded from their analyses is that in all likelihood these non-investment grade bond issuers do not need a large quantum leap in rates to start getting into default. Because unlike back in 2007, they did not have to contend with higher inflation and the amount of zombie debts are substantially higher. All it takes is for more zombie debts to start getting into default before the banks start pulling the rug under them...creating a domino effect and then we see big risk premiums built into the high yield bond rates.
