A ‘Tsunami’ is About to Overwhelm The Debt Market

• A ‘Tsunami’ is About to Overwhelm the Debt Market
  by BOB BRYAN, http://www.businessinsider.com/  
  A tidal wave may be coming to the bond market, and it’s not going to be pretty.
  At least that’s the view of Matthew Mish, credit strategist at UBS. To Mish, the elevated rates of default in the commodity sector and high risk bonds are a harbinger of things to come for the broader debt market.
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  “First, our quantitative framework is signaling a broader deterioration in the default outlook, with our model projecting default rates of 4.3% over the next 12 months (versus 2.6% one year prior),” wrote Mish in a note to clients on Thursday.
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  Mish’s research asks whether the recent uptick in default rates is simply a “rogue wave” that will dissipate or the “start of a tidal wave” that will bring the rate of defaults much higher over the long-term. Mish is in the latter camp. He cites three short-term reasons for a coming increase in the number of firms unable to pay back their debt. They are:
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  1. Decreasing profits: Mish notes that corporate profits fell 7.6% in the first quarter against the same time period a year ago. In order to pay back loans, companies need to continue to make more, and thus with less cash coming in, there will be less to allocate to debt.
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