A rapid rise in levels of risky corporate debt has emerged as a top vulnerability in the world's largest economy.
Leveraged lending in the US jumped by a fifth to $1.1 trillion in 2018, above peaks seen during the financial crisis, the Federal Reserve said in a semi-annualThat was particularly concerning because the largest increases were concentrated among the riskiest firms, which have lower credit ratings and already large amounts of debt. Credit standards for business loans appear to have loosened over the past six months.
"Even without a sharp decrease in credit availability, any weakening of economic activity could boost default rates and lead to credit-related contractions to employment and investment among these businesses," the report said.While the economy grew at a far faster pace than was expected in the first quarter, forecasters said underlying trends pointed to cooler growth in the coming months.
"Compared with the investment vehicles associated with subprime mortgages in the financial crisis, CLOs are structured in a way that avoids run risk," the report said.
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