It helped bring down the Roman Empire. It’s taken down moguls and companies alike.
And as interest rates rise, we could find ourselves in a bond bubble created by debt.
Look at the firms declaring bankruptcy or liquidating – Toys “R” Us, iHeartMedia, and Claire’s, to name a few. Each an industry giant, debt overcame them all, and the bond market is feeling it.
iHeartMedia can’t afford its $1.8 billion debt payments on its $20 billion in debt. Claire’s hopes to shed $1.9 billion in debt. And there are probably more coming – it’s only a matter of time before the default rate rises intensely.
Treasury notes of 5- and 10-year maturities have doubled since July 2016, meaning companies are being charged higher rates on new loans. So, outstanding debt will become more expensive when it’s refinanced in a few years.
How does this all end?
The writing on the wall points to debt continuing to mount, which could trigger a credit crunch. Plus, huge amounts of debt could be eliminated altogether.
From the looks of it, the storm is en route. Take cover.