The credit crunch will bring a 'rolling blackout' of defaults as companies feel the pressure of tighter financial conditions, Bank of America says
Tighter credit conditions will bring about a wave of corporate defaults that will roll through sectors of the economy, Bank of America said.
"A rolling blackout is the least disruptive way for credit to align to a new rates regime. As the rates shock steadily makes its way through the credit ecosystem, sectors respond at varying lags," strategists said in a note on Monday, predicting corporate defaults would hit sectors at different times.
"This way we avoid a cathartic purge, preventing large mark to market losses and high peak default rates. We still land up cleaning out untenable capital structures, but on a stretched-out timeline." That"rolling blackout" of defaults has already started, strategists added, referring to signs of trouble in various sectors. Areas like healthcare, real estate, tech, and financials have already suffered a wave of volatility as firms faced earnings pressure, and unaffected sectors, like travel and leisure, could soon feel the pain as well.
Signs of trouble have also been brewing in various credit markets. High-yield bonds and US loans have seen an
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