World faces ‘perfect default storm’ when Fed hikes rates – Deutsche Bank

15-Apr (Telegraph) — A series of interest rate increases by the US Federal Reserve could create a “perfect default storm” for global corporate bonds in 2018, Deutsche Bank has warned.

Expectations that the US Federal Reserve will begin to hike its interest rates, perhaps as early as this year, could trigger a “default cycle”, the bank said.

…The German bank said that the low level of defaults had sunk further since the financial crisis “with QE and zero interest rate policies conducted around the world”. Mr Reid said: “Defaults will stay unusually low so long as current artificial conditions continue.”

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PG View: …and therein lies the rub: Once markets become addicted to “artificial conditions,” a return to reality becomes very problematic. It becomes far easier to just perpetuate the fantasy in perpetuity (see Japan).