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Zombie Apocalypse: Rate Hikes to Hit $7.5T in Vulnerable Debt

Palisade Research  ( Original )
APR 26, 2018

It’s the most basic math. If you’re a company that can’t manage to stay solvent without perpetual ZIRP debt, you’re a corporate zombie. And as soon as access to that debt goes away and you’re forced to pay interest, your days as a staggering, lurching, undead public firm are numbered. Default, then bankruptcy, await.

The question will be at what point does the Fed give in to pressure, both Wall St. and political in nature, and stop raising rates, abandoning attempts to constrain inflation to keep companies that should be bankrupt on corporate-welfare life support.

A 35-basis point increase could raise business loan interest costs by $21 billion.

So, with yields rising – both on the short end and the long end of the curve – this could hurt the business sector. Which means the stock market. . .

Just look at the stocks with high-floating rate debts (adjustable interest) having underperformed the S&P 500 when borrowing costs rose.

The correlation is unmistakable. . .

Unless the Fed completely reverses their tightening strategy – which they inevitably will – things are only going to get worse.

During the low interest rate years, companies could pile on debt to buy time. But once interest rates start rising – things start getting difficult for them.

ORIGINAL SOURCE: There is Over $7.5 Trillion In Debt That’s Highly Vulnerable To Rising Rates – Here’s What To Expect by Adam Tumerkan at Palisade Research on 4/24/18